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Real estate yields and spreads

Bryan Reid and Fritz Louw

March 23, 2021


Relatively strong and stable income returns from real estate can give the impression that real estate is bond-like and that long-term bond yields drive real estate yields. But is the relationship between bond and real estate yields as strong as some assume? The downward-trending movements of both series in recent years can create a misleading impression of a strong relationship, but a comparison of yields and spreads over a longer time period shows that the relationship is more complex with limited co-movement.

Real estate cash flows can be sticky in the near term thanks to lease structures, but over the longer term they are sensitive to growth and inflation. Thus changes in growth and inflation expectations may help explain some of the spread movements we have observed. With increasing discussion about the potential for higher inflation after the pandemic and long-term bond yields in some countries increasing, investors may want to consider the potential impact on their real estate portfolios.

How to interact with this plot: Select “Yield” or “Spread” to see how real estate and bond yields have compared over time in selected countries. Hover the mouse over the charts to see more details.




Real estate yields are the all-property, unlevered, asset-level, pre-capital-expenditure, net-operating-income yields from the MSCI France Annual Property Index, MSCI Germany Annual Property Index, MSCI Japan Annual Property Index, MSCI Netherlands Annual Property Index, MSCI Netherlands Quarterly Property Index, MSCI South Africa Annual Property Index, MSCI Sweden Annual Property Index, MSCI U.S. Quarterly Property Index, MSCI UK Annual Property Index, MSCI UK Quarterly Property Index, MSCI/Property Council of New Zealand Annual Property Index, MSCI/REALPAC Canada Annual Property Index, MSCI/SCSI Ireland Quarterly Property Index and the Property Council of Australia/MSCI Australia Annual Property Index. Bond yields are sourced from the Organization for Economic Cooperation and Development.

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