Is Real Estate Bond-Like?
Research Paper
June 16, 2015
Preview
Growth Drives Long-run Risk and Return
Peter Shepard, Peter Hobbs, Yang Liu
June 2015
Many institutional investors have been favoring private real estate over bonds, drawn by its steady income stream and higher yields. But while the short-term income of real estate may be bond-like, our research shows that its long-run behavior is much more cyclical and growth-sensitive. Real estate is not the high-return, low-risk, free lunch some investors would hope for. But it's not all bad news: The research further suggests that private real estate generates a liquidity premium in most markets around the world, and that inefficiencies in international markets still leave large opportunities for diversification globally.
Peter Shepard, Peter Hobbs, Yang Liu
June 2015
Many institutional investors have been favoring private real estate over bonds, drawn by its steady income stream and higher yields. But while the short-term income of real estate may be bond-like, our research shows that its long-run behavior is much more cyclical and growth-sensitive. Real estate is not the high-return, low-risk, free lunch some investors would hope for. But it's not all bad news: The research further suggests that private real estate generates a liquidity premium in most markets around the world, and that inefficiencies in international markets still leave large opportunities for diversification globally.
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