Figure 1: U.S. Equities P/E Ratio vs. CRE P/E Ratio, Expressed as a Z-Score
Source: CBRE Econometric Advisors, www.multpl.com.
(May 23, 2025) -- In a recent Chart of the Week, CBRE Ecometric Advisors highlighted a negative correlation between the inverse of cap rates—what they refer to as the commercial real estate price-to-earnings (CRE P/E) ratio—and future total returns. Building on that analysis, this month we compare real estate pricing with U.S. equities by examining the ratio of the Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio for the S&P 500 to the CRE P/E over the same time period. We present this ratio as a z-score*, which measures the number of standard deviations the data point deviates from its historical mean.
Since cap rate expansion began in 2022, the CRE P/E has declined to 17.8, just below its long-term average of 18.2 from Q3 1997 through Q2 2025. Meanwhile, the Shiller CAPE ratio has risen to 36.4, significantly above its average of 28.4 during that same span, and more than double the long-term historical average of 17.2 (dating back to 1871). This suggests that the stock market is historically expensive and that the relative value of equities to CRE is also at elevated levels, as reflected in the z-score chart.
It is also worth noting that the ten largest companies—trading at notably higher earnings multiples—now represent a historically high share of the S&P 500’s total market capitalization. The CAPE ratio would likely be lower on an equal-weighted basis, implying a less extreme valuation gap.
This comparative analysis suggests that commercial real estate may offer more attractive pricing than U.S. equities, making now a potentially favorable time to invest in CRE. That said, the operative word is “potentially.” Asset valuations reflect both projected earnings growth and risk perceptions. Given today's economic fundamentals and investor sentiment, a historically elevated CAPE ratio may be justified.
*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).23