Demand for commercial property investment in core European markets will intensify thanks to the current turmoil in Europe’s debt and currency markets, says PRUPIM.

Research by the real estate global fund manager, International Real Estate Perspective, shows that, despite turbulence around the Eurozone, 2009’s yield compression has now become evident in almost all markets and sectors in continental Europe.

PRUPIM’s senior research analyst, Anne Koeman, said the sovereign debt crisis may have sparked a flight to safety, but some bond yields have declined making property yields in Europe relatively more attractive against the risk free rate. “Prime property is seen as a safe haven for investment and the region is looking increasingly appealing to institutional investors because of the diversification benefits it has to offer.

“The recent devaluation of the Euro is also likely to entice further interest from overseas investors who see large discounts for the properties on offer, compared to a year ago. However, appetite is strongest for prime properties in core locations and there is still noticeable risk aversion in the market. Most investors seem very wary of property investment in South and Eastern Europe, even at current, high yield levels.”

The report, which is bi-annual, shows that the European property investment market has picked up ahead of a fundamental economic recovery, with investors looking to capitalise on opportunity.

Strong performance is also forecast in Asian property markets, with the economic recovery here gathering pace and rental growth re-emerging in some of the tightest markets. Australia is a favoured destination for investors seeking exposure to Asia Pacific markets. Canada’s market looks opportune, and North America property investment is also likely to see increased interest.

“Overall, there seems to be a steady but tentative recovery across global property markets – though largely confined to well-located, prime assets led to tenants with good covenants on longer leases. However, there are still a few skeletons in the global economic cupboard. So, no-one can say how sustainable the current recovery will be,” added Koeman.

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