The trend towards lower initial yields, he says, is driven by growing demand for prime assets, and a desire for the listed sector to increase in size. "The listed, private and institutional sectors are all eyeing property thanks to a re-weighting of the property component in investment portfolios."

Since government long-bonds are considered to be very secure, long-bond rates are the closest thing to a "risk-free" investment return.

What investors need to assess, though, is whether or not it is appropriate for long-bond yields and listed property yields to converge. "Or are we fuelling the sector to dangerous levels?"

Weil believes that the re-rating of commercial property internationally is driven by a dearth of alternative performing investments. As Weil points out, investors are often willing to accept comparatively low returns on real estate when interest rates are low and stock markets are volatile.

"There’s a substantial amount of money chasing after scarce prime resources," adds Weil, noting that a strengthening of yields is being observed globally.

Take the case of Real Estate Investment Trusts (REITs) in the United States. These are similar to the Property Units Trusts (PUTs) traded on the JSE Securities Exchange. Traditionally, over the past three decades, REITs traded at a higher yield than long-bonds but more recently, they have moved lower than the long-bond rate.

JHI’s international associate, Oncor, has found that expected initial yields for property in prime US markets dropped about 200 basis points this year.

Cautions Weil: "Recent over-priced deals have caused strong market reactions, especially where investors hold unrealistic assumptions about their ability to grow revenues under improved future market conditions. This is a valuable lesson for the SA marketplace."

In Australia, Property Listed Trusts (PLTs) have consistently traded at a premium to long-bonds although initial yields strengthened significantly in the past 12 months. Lower yields are being recorded in the UK and across most European markets too.

The bottom-line, concludes Weil is that there is no real cause for concern that listed property yields are too close to long-bond rates, as long as there is real earnings growth potential.