What can commercial property performance reveal about bank valuations?

•We identify a link between commercial property performance and bank valuations.•REIT prices can predict bank equity prices in the US, the euro area and in Japan.•A commercial property factor enhances the CAPM and the 3-factor Fama-French model.•Quantile regressions show that this factor is prominent during downturns.•Factor explains half of the drop in bank valuations during GFC and Covid pandemic. We test whether commercial property performance, proxied by real estate investment trust (REIT) prices, can inform us about bank equity prices. Using data from the United States, the euro area and Japan, we show that REIT prices can predict bank equity prices. Furthermore, a “commercial property factor” adds significant explanatory power to both the CAPM and the 3-factor Fama-French model. At the same time, quantile regressions show that this factor becomes particularly prominent during downturns. It accounts for around half of the drop in average bank valuations during the great financial crisis and, again, during the Covid-19 pandemic.