The monthly returns on UK real estate companies, which in the future may become REITs, are analysed over the period September 1996 to July 2006. The results indicate that the risk premiums on the UK real estate companies are significantly related to the risk premium on the stock market and to the returns of mimicking portfolios for size and book-to-market equity on common stocks. Macro factors have low explanatory power. Real estate specific factors, like real estate dividends and market cap, are found necessary to describe real estate returns in addition to the three stock market factors. The results also show that real estate has outperformed the stock market in the analysed time period with 9.11 %, due to the high returns of the real estate companies in the past five years. The risk attitude among investors is found important in explaining the reason for this high difference in performance. In addition, the results show that the office sector has outperformed the other commercial sectors in the analysed time period.