Emerging Europe: Property yields to move higher

Weaker economic activity and higher interest rates as a consequence of the war in Ukraine will weigh on property performance in Central and Eastern Europe (CEE). Shifts in investor sentiment and a sharp deterioration in valuations are expected to put upward pressure on property yields from this year. We now think CEE all-property yields will rise by a cumulative 45bps over the coming years. This will contribute to capital values falls in the coming years, particularly in the office and industrial sectors where the rental outlook is softer. After 2022, this will mean retail steps up as the best performing sector.