The post-election euphoria has faded. Rising geopolitical tension, turbulence within the White House, and rising doubt among investors regarding the Trump administration’s ability to move forward with its agenda have dimmed infl ation expectations, pushing interest rates to the lowest levels of 2017. The Baa corporate bond yield slipped to 4.51% through the first half of 2017, reversing the sharp rise through the latter part of 2016. The average cap rate during this time increased to 5.40%, holding within the narrow band (5.2%-5.4%) observed over the previous two-year period. As a result, the cap rate-to-corporate bond ratio edged upwards through midyear 2017, rising to approximately one standard deviation above the ratio’s long-term average and indicating that real estate remains fairly valued relative to fixed-income alternatives.
Source : CBRE Global Investors