Prime real estate yields rose in the last 18 months to reflect thechanged interest rate enironment, but the spread between primeyiekds and 10-year Government bond yields remains tightcompared with the last decade Small spreads over nominal Gowvernment bond yields wereobserved during the Global Financial Crisis of 2007-08, but theywere also commonplece before this, with target returms for realestate met through a combination of initial income and cashflow growth Index-linked Government bonds are a better benchmark forthe risk-free rate when analysing real estate, because cashflow growth is integral to both types of investment. The spreadbetween prime yields and 10-year index-inked Gilt yields hasbeen consistently positive through time, although it is nownarrower than in reoent years Corporate bond yields have also shown a closer correspondencewith real estate yields since these investments. like real estate.offer a risk premium relative to Government bonds. The yields forB8BB UK corporate bonds have risen above prime real estate yieldsover the last 18 months Current real estate pricing might look unfavourable based onthese comparisons, but history shows that the position canchange quickly, and pressures on real estate will ease if long-terminterest rates start falling in reflection of a declining UK inflationrate and an end to the rate rising cycle