Yields on U.S. commercial real estate are nearing a record high compared to Treasury bonds. Many investors take that as a signal to buy property.
Capitalization rates, a measure of real estate yields, averaged 7.22 percent in the second quarter, as calculated by the National Council of Real Estate Investment Fiduciaries. That was 4.29 percentage points higher than the yield on 10-year government bonds as of June 30 and 4.75 percentage points higher than Treasury yields as of Aug. 31.
These returns are near the record 5.39 percentage points in the first quarter of 2009, when the U.S. was dealing with the worst economic downturn since the Great Depression. The spread shrank to less than 80 basis points when commercial real estate prices peaked in 2007.
“The data indicate that real estate is poised for a rebound,” says Gerardo Lietz, who advises pension funds on property investments.
Source: Bloomberg, Hui-yong Yu (09/01/2010)