Corporate bonds offer more proof of stretched US CRE valuations

On the back of the MSCI and NCREIF indices reporting rising capital values in Q1 and our significantly below-consensus forecast views for the next two years, we are again re-evaluating our forecasts. But however we look at valuations, they simply don’t stack up. One additional support for our story is the substantial divergence between cap rates and corporate bond yields over the last three years. The only other time there has been a similar divergence was in the run up to the GFC.