ING Investment Management predicts that real estate will underperform equity markets in the current environment of rising long-term rates. But it remains overweight in this asset class as it believes that dividend yields are attractive compared with bond yields and are above those in equity markets.

“The performance of listed real estate relative to equity over the last three years has been tightly linked to the evolution of long-term interest rates in the developed world. Listed real estate is the more leveraged asset class, and with most debt at developed market real estate companies at fixed long-term interest rates, the evolution of interest rates has been a good explanatory factor for the relative performance of real estate versus equity,” Koen Straetmans, senior strategist, real estate and commodities at ING IM explained in a statement.

But ING IM says the impact of interest rate movements on listed real estate performance differs across regions. US-listed real estate and, to a lesser extent, UK-listed real estate have the highest negative correlation since 2012 (at -0.63 and -0.49 respectively). This compares to a negative correlation of -0.45 for global listed real estate. Developed Asian listed real estate has a lower correlation to US Treasury yields, as does real estate in the eurozone and in emerging markets, in particular.

Within listed real estate, ING IM favours developed Asia: Australia, Singapore, Hong Kong and Japan.