The relationship between interest rates, real estate yields and performance is important for investors to understand.

Cromwell’s latest report published by Alex Dunn and Tom Duncan from the research and investment strategy team sheds some light on this topic. Their analysis indicates that interest rate movements do not necessarily cause directly comparable real estate yield changes. The volatility in the yield gap between real estate yields and ten-year government bonds suggests that the influence of other factors play a substantial role in price movement.

This has implications for the extent of yield compression that investors can expect during periods of falling interest rates, as well as decompression when interest rates rise.