Property yields have risen on the back of higher interest rates and have started to drag materially on values. We expect this to continue in 2023, as valuations are still highly stretched. Given downgrades to our rental forecasts for next year in response to a weaker economic outlook, rental growth will provide little offset. But the economic recovery in the second half of 2023 and lower bond yields mean we expect the peak-to-trough fall in CEE all-property capital values to be limited to around 15%. The office and industrial sectors are forecast to be hardest hit, with smaller yield rises expected to limit the decline for retail. A better rental outlook will also support the retail sector further ahead. The upshot is that industrial will quickly lose its position as the best performing sector and retail will take over as the marginal outperformer over the 2023-27 period.
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