A global hunt for yield has been a primary concern for investors for much of the past three decades as interest rates and bond yields trended lower.
However, the recent inflation spike and upward movement in interest rates and bond yields has reduced the commercial real estate and bond yield spread, raising questions on the relative value proposition.
This report reviews trends in bond yields, capitalisation rates and total returns, and notes that while the commercial real estate and bond yield spread has narrowed, a well leased commercial property with a strong covenant and appropriate rental escalations should provide an inflation hedge and stronger total returns relative to bonds.
