Real estate income yields (cap rates) have a relationship over time to Baa Corporate Bond yields.
They are both credit sensitive and credit worthy. The average historic cap rate/bond ratio is 108%. When this measurement is higher by more than one standard deviation, real estate is considered “undervalued,” and when this measurement is lower by more than one standard deviation, real estate is considered “overvalued.”
The current ratio, 119%, indicates that real estate is attractively priced, and is holding steady, decreasing slightly from 121% the previous quarter. This is a positive indicator, as the ratio has been in “undervalued” territory for the past two quarters now.
Source : CBRE Global Investors