In May 2023, CBRE analysts observed that REITs tend to reflect broader securities market volatility over the short term, but this volatility tends to dissipate over a longer-term period of four years. The CBRE experts advised investors to “hold REITs for several years in order to ensure returns are comparable with private CRE.”
Subsequently, the analysts posed the question whether REIT prices could be considered an indication of private equity real estate values. In examining quarterly Nareit-implied cap rates and MSCI-RCA transaction cap rates, they noted that while these two metrics align eventually, there were periods when they showed persistent disconnection which sent out an important pricing signal – such as during 2008-2009 when private deal flow halted while public investors discounted asset values significantly which was reflected in subsequent private market cap rates too.
The current situation is similar wherein transaction activity has stalled due to increasing bid/ask spreads and office space shows a significant discount compared with net asset value according to REITS implied cap rate data – leading CBRE experts conclude that “private market devaluation will catch up soon” based on distressed office asset sales indicating so already.
