Real estate is pricey relative to corporate debt. Through the fi rst quarter of 2016, cap rates remained stable, while bond yields dropped from 4Q15 but remain under pressure. As a result, the cap rate:bond yield ratio rose to 101:100, up from 98:100 the previous quarter but down from 118:100 from one year prior. Prices are back in fair value – but barely. Property transaction volumes have declined in comparison with recent quarters, alleviating downward pressure on cap rates, while corporate bond yields remain elevated, as profi ts continue to slip in large part due to challenging global economic conditions. The past year’s sharp decline in the ratio can almost be entirely attributed to the rise in bond yields. The average cap rate stood at 5.4% in 1Q16 relatively unchanged from the average cap rate one year prior, while Baa corporate bond yields rose roughly 80 bps to 5.31% during this time.
Source : CBRE Global Investors