• From December 1993 to December 2018, commercial real estate owners theoretically received a 3.6 percentage point property total return spread over bond total returns. 
  • Sector level spreads differed: office 3.0%, retail 4.0%, industrial 4.3%.
  • The All Property spread (3.6%) was fairly consistent if investors held assets from 1 to 10 years but the risk in achieving the spread was higher as the hold period declined. Investors seeking higher risk adjusted returns would benefit from holding assets for longer time periods.
  • Testing the theory against 1,647 transactions that occurred over a 25-year time period proved counter to the theory. As hold period increased, average spreads tended to decrease and for hold periods over six years were negative.
  • Looking ahead, given that bond yields have reached new lows and will likely move sideways over coming years, we expect property total return spreads over the medium term outlook period will be higher than the historical average.