Emerging Europe: Milder downturn, slower recovery

Emerging Europe has seen less steep falls in values than elsewhere so far, but will not be immune in 2023. Higher interest rates and economic weakness mean these markets will have a challenging year and recent financial disruption only heightens the downside. A poor economic backdrop will bring a slowdown in rents across the sectors, while yields are also set to rise further this year. Despite this, the total peak-to-trough fall in CEE all-property capital values will be limited to around 7%, significantly less than is expected in the euro-area. But the recovery will be slower too. Offices are forecast to be hardest hit, with the most sluggish rental growth outlook and a limited contribution from yields. At the same time, the recent dominance of the industrial sector will not be reasserted and retail will take over as the best performer by the end of the 2023-27 period, albeit by a fairly small margin.