The European real estate market is likely to experience a “two-speed” market, reflecting the widening gap between investment hotspots and second-tier property markets, a survey by PwC and the Urban Land Institute (ULI) has predicted.

The Emerging Trends in Real Estate 2011 forecast, based on the opinions of 600 industry experts, has anticipated that 2011 will not be the turnaround year that the European real estate industry had hoped for with more industry downsizing expected across the continent.

Respondents expressed serious concerns about areas outside prime regions, even within the same country. Cities such as Munich, London and Paris should continue to absorb investment as the only places where tenant demand will be robust, with other investor favourites to be Istanbul, Stockholm, Berlin and Hamburg. Those surveyed expected investors to avoid Dublin, Athens, Lisbon and Budapest.

The report forecasted that even within the most favoured markets, investment will be drawn mainly to the prime buildings. The result is that values for secondary properties will remain at distressed levels and decline further in the months ahead.

However, the report also foresaw improvements in the availability of real estate equity this year. This is expected to come from an increasing number of investors from Asia Pacific and institutions such as insurance companies and private equity funds.

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