Managers will need to work harder to create genuine value from their real estate investments as inflation is proving higher and more persistent than originally expected.

The warning, contained in UBS Asset Management’s fourth Real Estate Outlook report for 2021, comes as central banks around the globe are expected to raise interest rates over the next 12 months to combat rising inflation. The manager says that capex and sustain-ability requirements are going to weigh ever more heavily on net operating income (NOI), but with property yields at ultra-low levels, there is little buffer should a downside scenario play out.

Inflation hit 4.9 percent in the euro zone in November and 4.2 percent in the UK in October. Although UBS Asset Management says that the vast majority of price increases continue to be linked to the impact of the COVID-19 crisis and expects them to fade away over the next 24 months, central banks have turned more hawkish.

“Markets are