In a recent Chart of the Week, we illustrated a negative correlation between the inverse of cap rates (what we call the CRE P/E) and future total returns. In this month’s analysis, we compare real estate pricing with U.S. equities. Specifically, we plot the ratio of the Shiller Cyclically Adjusted PE (CAPE) Ratio for the S&P 500, which uses earnings from the previous 10 years, and the CRE P/E for the same time period. We plot this metric as a z-score*, which shows how much a series deviates from its historical average.

Since cap rate expansion began in 2022, the CRE P/E has fallen to 17.8, slightly below the average of 18.2 between Q3 1997 and Q2 2025. In contrast, the Shiller CAPE ratio stands at 36.4, well above the average of 28.4 over that same period, and more than double the long-term average of 17.2 with data going back to 1871. Not only is the stock market expensive relative to history, but the ratio between Shiller CAPE and CRE P/E is well above historic levels, as shown in the chart below. It’s worth noting that the largest 10 firms, which trade at higher multiples, currently comprise a historically high portion of the S&P 500 market capitalization. Therefore, the S&P 500’s CAPE ratio on an equal-weight basis would be lower.

This analysis may indicate CRE is cheap relative to an alternative like U.S. equities, making this a potentially attractive time to invest. Of course, the key word is “potentially.” Asset pricing incorporates projected earnings growth as well as risk assessments. Therefore, a historically high CAPE ratio for equities may be appropriate given fundamentals and investor outlooks.

*Z-scores are calculated as the current value less the mean divided by the standard deviation during our period of interest (Q1 2005 to Q2 2025).

Figure 1: U.S. Equities PE Ratio / CRE PE Ratio, Expressed as a Z-Score

Source: CBRE Econometric Advisors, www.multpl.com