Jak se u nemovitostí počítá yield a jaký má vztah k návratnosti investice

What yield is and how it is calculated

Yield (rental yield, also known as cap rate or capitalization rate in the commercial sector) is a ratio indicator. It tells you what percentage of the property's price you get back each year from rent. The basic formula is simple:

Yield (%) = (Annual Rent ÷ Property Price) × 100

Example: An apartment purchased for CZK 5,000,000, rented for CZK 20,000 per month, which is CZK 240,000 per year.

240,000 ÷ 5,000,000 × 100 = 4.8% gross yield

This number is useful for one main reason: it allows you to compare properties with each other regardless of their absolute price. An apartment for five million and a warehouse for fifty million suddenly become comparable—you just need to see which property yields a higher percentage.

The same formula in reverse: how value is calculated from yield

Here is something that is often a source of misunderstanding. The formula can be reversed, and it is in this form that appraisers use it for income-based valuation:

Value = Annual Rent ÷ Yield (as a decimal)

The key is that you insert the yield into the formula as a decimal, not a whole number. A five percent yield is 0.05, not 5. So, if we know that comparable properties in a given location are selling for a 5% yield and our property generates an annual rent of CZK 240,000:

240,000 ÷ 0.05 = CZK 4,800,000

It works exactly the same way as when you calculate a percentage of an amount—just in the opposite direction. Dividing by the "percentage" turns the rent stream into a capital value. That's why there is an inverse relationship in the market: the lower the yield the market demands, the higher the price it is willing to pay for the same rent—and vice versa. When the required yield for real estate funds falls below a certain threshold, properties are revalued upwards; when it skyrockets, the value falls, even if the rent hasn't changed.

Relationship to payback period: yield is just the inverse of the payback period

The payback period and yield are two sides of the same coin. You can calculate the simple (gross) payback period like this:

Payback Period (years) = 100 ÷ Yield

• 5% yield → 100 ÷ 5 = 20 years

• 4% yield → 100 ÷ 4 = 25 years

• 8% yield → 100 ÷ 8 = 12.5 years

It's logical: if a property returns 5% of its price annually, it needs twenty years to return the entire price. Yield and payback period carry the same information, just from opposite ends—one is a percentage per year, the other is the number of years.

But beware of the word simple. This calculation does not account for inflation, property price appreciation, taxes, or costs. It is a quick estimate, not a financial model.

Gross versus net yield: where "a little is deducted"

Gross yield is based on rent before costs. In reality, however, you are interested in the net yield, which subtracts operating expenses from the rent. In commercial terminology, the net annual income after deducting operating costs (but before mortgage payments and income tax) is referred to as NOI (Net Operating Income), and it is from this that the cap rate is calculated.

Typical items to be deducted include:

• Property tax,

• Insurance,

• Repair fund and HOA fees,

• Management costs (a management company typically takes 5–10% of the rent),

• A reserve for loss of income when the property is vacant or the tenant does not pay.

For residential apartments, the net yield is usually about half a percentage point lower than the gross yield. Let's return to our example: if the annual costs were CZK 60,000, the net income would drop to CZK 180,000 and the net yield to 3.6%—extending the payback period from 20 to almost 28 years. The difference between the "on-paper" and actual return is therefore not merely cosmetic.

Why the type of tenant changes the yield

Yield is not just math—it's the price of risk. Two properties of the same size with the same rent can have significantly different values depending on who is occupying them and under what conditions. The market will pay more for a more secure rental stream (accepting a lower yield) and less for a riskier one (demanding a higher yield).

The value of the yield is particularly affected by:

• The creditworthiness and type of tenant. A corporate tenant with good credit reduces the risk of vacancy and stabilizes income. Student or short-term rentals have higher turnover and thus a higher risk premium.

• The length and quality of the lease agreement. A long-term, fixed-period contract (monitored via the WAULT indicator—Weighted Average Unexpired Lease Term) increases the value and makes it easier to obtain bank financing.

• Contractual security. A security deposit or bank guarantee (typically 3–12 months' rent) and an indexation clause, which automatically adjusts the rent for inflation, make the rental stream a more predictable asset.

• Incentives. Conversely, rent-free periods at the beginning of a lease temporarily reduce the effective yield.

In other words, a good lease agreement not only means a better night's sleep but also directly translates to a higher property price upon sale.

A practical example: buying an office building with tenants

For an apartment, the calculation is simple—one tenant, one rent. For an office building, the situation is more complex: you have several tenants, part of the space may be empty, and each contract has different conditions. This is where it becomes fully apparent why vacancy and tenant quality affect the price.

Imagine an administrative building in Prague with a total leasable area of 4,000 m² and a market rent of around CZK 4,800/m² per year. At full occupancy, the building would generate a potential gross rent of CZK 19,200,000 per year. But the reality is different—let's look at the so-called rent roll, i.e., the overview of lease agreements:

Step 1: From gross rent to net operating income (NOI)

We start with what the building actually earns and gradually subtract what is consumed by operations and vacancy:

• Contractual (passive) rent from occupied space (3,400 m²): CZK 16,320,000

• − Loss from vacancy: 600 m² generates nothing; moreover, the owner, not the tenant, pays the costs for empty spaces (service charge, utilities, tax)

• − Non-reimbursable operating costs of the owner: building management, insurance, property tax, repair reserve, costs for vacant units—let's say a total of CZK 1,320,000

NOI ≈ 16,320,000 − 1,320,000 = CZK 15,000,000 per year

Here is the first impact of vacancy: 15% empty space means the building earns significantly less than it could at full occupancy (where the NOI would approach CZK 16.8 million).

Step 2: What yield the buyer will use

And now comes the second, often underestimated, impact. The buyer will not use the prime yield of 5.25% that applies to top-tier, fully occupied buildings with first-class tenants. This building has a 15% vacancy rate, one weaker tenant with an early termination option, and a relatively short weighted average unexpired lease term (WAULT). All of this is risk, and risk is reflected in a higher required yield. The buyer will therefore use, for example, 6.75%.

Value = 15,000,000 ÷ 0.0675 ≈ CZK 222,000,000

Step 3: Why it's a "double whammy"

Let's compare the same building in two states:

The income value of a commercial property can change significantly even with a relatively small decrease in operating income or an increase in the required yield. This is well illustrated by comparing a fully occupied property with stable tenants to the real situation where some space remains vacant and the owner bears additional risks.

At full occupancy and with a strong tenant structure, the net operating income (NOI) is CZK 16 million per year. At a required yield of 5.25%, the property value corresponds to approximately CZK 320 million.

However, if the actual situation includes, for example, a 15% vacancy rate, a weaker quality of tenants, or a higher risk of future income loss, the NOI may drop to CZK 15 million. At the same time, the investor demands a higher yield, for example 6.75%, to compensate for the increased risk. The resulting property value then falls to approximately CZK 222 million.

The difference of almost CZK 100 million shows that when valuing an investment property, it is not enough to look only at the current rent. The quality of tenants, the length of lease agreements, occupancy, cash flow stability, and the overall risk of the investment are also crucial. It is these factors that are reflected in the required yield and thus directly in the market value of the property.

The difference is almost 100 million crowns—nearly a third of the value. And yet it is the same building, the same bricks, the same address. Vacancy and tenant quality have hit the value twice: once by reducing the income (NOI), and a second time by increasing the yield by which that already lower income is divided. When you divide a smaller number by a larger percentage, the result falls particularly quickly.

What specifically interests a buyer during valuation

• Occupancy and its sustainability. It's not just what percentage is occupied today, but how likely it is to stay that way—i.e., when contracts expire and how easily the space can be re-leased.

• Tenant creditworthiness (covenant strength). A corporation with a parent company guarantee is different from a company with no history. The weaker the tenant, the higher the risk of default, the higher the yield.

• WAULT. The Weighted Average Unexpired Lease Term shows how long the income is "secured." A short WAULT = negotiations or departure are imminent = higher risk.

• Early termination options (break options). A 5-year contract with an option to terminate after 2 years is not a five-year contract—for valuation purposes, it is calculated to the earliest possible exit.

• Indexation clause. Without indexation, the rent effectively decreases in real terms; a building with indexation holds its value better.

• The difference between passive rent and market rent (reversion). If tenants are paying below market rates, there is hidden growth potential; if they are paying above market, there is a risk of a decrease at the next renewal.

What the Czech market looks like in numbers (2026)

For orientation, here is where yields are currently moving:

• Residential apartments: cap rate typically 3.0–5.5% depending on the location (Prague around 3.0–3.8%, Brno 3.5–4.2%, Ostrava 4.5–5.5%). This corresponds to a payback period of roughly 18 to 33 years.

• Office buildings: prime yield (i.e., the yield for the highest quality, fully occupied buildings with creditworthy tenants in the best locations) in Prague is holding around 5.25%. However, this is the value for the top of the market—an average, less occupied, or less well-leased building carries a noticeably higher yield.

• Real estate funds: average rental profitability around 6.7% p.a., with industrial properties, retail, and offices historically yielding the highest, while logistics and residential housing yield lower.

These figures confirm two things: residential apartments in large cities have a low yield (= high price and long payback period) because the market perceives them as a safe asset, while commercial and industrial properties carry a higher return in exchange for higher risk.

The legal perspective: the value of a property is created by the contract, not just the numbers

The above leads to a conclusion that is often lost in spreadsheets: the level of the yield, and thus the sale price, is largely determined by the content of the lease agreement. The tenant's creditworthiness, the length of the commitment, the grounds for termination, the indexation clause, security in the form of a deposit or guarantee—all of these factors decide whether a buyer will pay more or less for the same rent.

When acquiring an investment property (whether through a direct purchase or a share deal via an SPV, i.e., a special purpose vehicle holding a single property), the legal review of the lease relationships is one of the most important steps of due diligence. A contract that looks fine on paper may hide clauses that reduce the real return—short notice periods, a lack of indexation, or weak security.

For the office building in our example, the legal review would focus in particular on:

• A review of each lease agreement individually—the actual duration, early termination options, the indexation mechanism, and renewal conditions. The difference between an "8-year contract" and an "8-year contract with an option to terminate after three" is fundamental from a valuation perspective.

• Tenant confirmations of the lease status (estoppel certificate / tenant confirmation)—written confirmation from each tenant that the contract is valid as stated, the rent is being paid, and there are no disputes or unsettled claims. This protects the buyer from unpleasant surprises after the purchase.

• Service charges and the allocation of operating costs—which costs are borne by the owner and which are passed on to the tenants. This directly determines how high the "non-reimbursable" costs will be, and thus the NOI.

• Security and creditworthiness—the validity of deposits and bank guarantees, or guarantees from parent companies.

• Subleases and changes in the person of the tenant—whether and under what conditions the tenant can sublet the premises.

At ARROWS, our Prague-based legal team helps buyers and sellers set up and review lease documentation to ensure it truly protects the yield on which the property's value is based—from reviewing individual contracts and the rent roll, through structuring the transaction (direct purchase vs. share deal via an SPV), to defending the valuation during purchase price negotiations.

This text is for informational purposes only and describes the general principles of yield calculation and property valuation. It does not constitute investment or legal advice; specific transactions and contractual documentation require individual assessment. The market values mentioned are indicative and are based on publicly available data as of 2025/2026.