Emerging Europe: Less than stellar recovery in values

Following a year marked with sharp falls in retail rents and rising retail and office yields, the next few months for property values will continue to be dismal. We have pencilled in another drop in all-property capital values this year. With mass vaccinations allowing virus restrictions to be eased, economic activity should rebound sharply in H2, giving occupier demand a lift. However, we think that large supply pipelines and headwinds from the shift to more remote working and e-commerce will curtail the recovery in rents over the forecast horizon, particularly in Warsaw and Prague. The combination of softer rental growth and higher yields from 2022 will leave capital values barely growing over the next five years. Indeed, our forecast for CEE all-property capital value growth to average just 0.2% p.a. over the forecast period pales in comparison to its previous five-year average of 4% p.a..