During the past six months, UK and Euro- pean real estate yields have increased dramatically. UK logistics market prime regional yields increased from 3.25 percent in June 2022 to 5 percent at the end of the year; during the same period, prime office yields in Paris increased from 2.6 percent to 3.4 percent.

While the impact on capital values has been offset by rental growth, it is clear that UK and Euro- pean real estate has moved into a new regime, due to a combination of factors.

Firstly, inflationary pressures led to an increase in both short- and long-interest rates. German 10-year bond yields increased from less than 0.8 percent in August 2022 to 2.2 percent by the end of the year. This increased both target returns and financing costs.

Secondly, higher energy costs and elevated inflation, combined with rising interest rates, have led to a slowdown in economic activity. In the euro zone, real GDP growth is expected to turn negative in both the second quart