Global Real Estate Stocks—Time to Get Out?

by Eric Franco, AllianceBernstein

Real estate stocks have now rebounded from the crash during the global financial crisis. But we think valuations are still reasonable, especially as property fundamentals continue to improve in key markets.

Since bottoming in early March 2009, global real estate stocks, as measured by the FTSE EPRA/NAREIT Developed Index, have performed strongly, recovering nearly all the losses suffered during the financial crisis. Now, many investors are asking whether global real estate stocks remain a worthwhile investment. We think the answer is yes.

While global real estate stocks may look pricier than other equities, valuations have only just recovered to levels that are average relative to their own history and they are still attractive when compared with bonds. For example, the cash-flow yield spread to 10-year government bonds remains well above normal (Display).

The picture is brighter outside the US. Valuations of US real estate stocks are somewhat rich relative to their own history, but stocks remain attractive relative to bonds. Outside the US, however, real estate stocks still trade below their historical average and also look very appealing versus bonds. (more)

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