The real estate industry has undergone a meaningful shift in valuations in the last five years, first driven higher by the near-zero interest rates and then lower by the shift into a structurally higher rate environment. Meanwhile, construction costs have continued to climb. Altogether, this has generally resulted in replacement costs today that are higher than asset valuations across most major property types.

During the same roughly five-year period, cap rates implied by the public market show a notable divergence in valuations from both private market pricing and replacement costs. This dislocation creates a value proposition for real estate investors: listed REITs currently offer core property exposure at discounts to both private valuations and replacement cost.