Real estate has become increasingly expensive, as it comes close to being considered "overvalued", relative to corporate debt. Cap rates continued to compress through the final quarter of 2015, while yields for lower quality invetment-grade (Baa) debt trended upwards. Investors continue to clamor for real estate assets, maintaining upward pressure on pricing. At the same time, concerns regarding the effet of the global economic slowdown on U.S. company earnings and their ability to re-pay loans have contributed to arise in corporate bond yields. The cap rate:bond yield ratio at the fourth qurter of 2015 was 98:100, down from 104:100 the previous quarter and 117:100 on year prior. During the previous 12-month period, the average cap rate declined by close to 20 bps to 5.3%, while the Baa corporate bond yield increased by roughly 70 bps to 5.4% – a level unseen since Septembre 2013.
Source : CBRE Global Investors