The introduction of austerity measures in Europe's crisis-hit countries is polarising the investment market, driving returns to around 25% higher in the least exposed markets such as the Nordics and CEE, according to new research released on Wednesday by global real estate services firm DTZ.

In the report, Greece, Ireland, Italy and Portugal are categorised as the 'most exposed' markets while five countries including Germany and the UK are classified as 'marginally exposed'. Economies outside the Euro including the Nordics and CEE nations are classed as 'least exposed'.

Most exposed markets were found to have annualised total returns of 8.4% per annum, while marginally exposed returned 7.8% pa and the least exposed 6.7% pa.

The difference in performance between the three categories is driven primarily by yield spreads. The most exposed markets are currently offering yields around 100 base points above those of the least exposed markets. Along with higher yields, the report predicts some yield compression, as the most exposed markets' government bond yields are forecast to tighten and return towards their lower long-term averages. This is in contrast to the least affected markets where government bond yields are expected to rise, triggering negative yield impact.

Although total returns are higher in the most exposed markets, rental growth remains subdued. Forecast job cuts are acting as a drag on office markets as the effects of austerity measures impact directly on public sector employment numbers and indirectly on private sector growth.

'Property yields have remained high in peripheral economies, whilst driving them down in core locations,' said Tony McGough, global head of DTZ Forecasting & Strategy Research. 'Capital has shifted rapidly from countries most identified at risk, and even to less exposed cities within countries. However, the impact of occupier markets distress on rents is still playing out. Austerity cuts throughout Europe have been announced but few have actually taken place so the full impact will be revealed over the course of the next couple of years.'