In May 2023, CBRE analysts noted that REITs tend to reflect broader securities market volatility over the short term. However, when viewed over a longer-term period of four years or more, this volatility tends to disappear and investors are advised to “hold REITs for several years in order to achieve returns similar to private CRE”. Subsequently, the experts asked whether REIT prices could be considered a weak signal for private equity real estate values.
When comparing quarterly Nareit-implied cap rates with MSCI-RCA transaction cap rates it was found that while both do align eventually there are periods of persistent disconnect which send an important pricing signal – such as during 2008/2009 where public investors aggressively discounted REIT asset values which were later reflected in private market cap rates due to halted deal flow activity.
The CBRE experts explained that we may be seeing something similar today with transaction activity stalling because of increasing bid-ask spreads and rising office space implied cap rate discounts compared with net asset value – suggesting “private market devaluation will catch up soon” according their conclusion based on distressed office asset sales being observed by REITS .
