Institutional demand for core European properties is likely to intensify despite the current turmoil in the region’s debt and currency markets, according to PRUPIM’s latest review of global real estate markets.

Institutional demand for core European properties is likely to intensify despite the current turmoil in the region’s debt and currency markets, according to PRUPIM’s latest review of global real estate markets.

PRUPIM’s International Real Estate Perspective report confirms that, despite the turbulence around the Eurozone, the yield compression which started to emerge at the end of 2009 has now become evident in almost all markets and sectors in continental Europe.

"As the sovereign debt crisis sparked a flight to safety, some bond yields have come down, making property yields in Europe look 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," said Anne Koeman, research analyst at the real estate fund manager.

"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," Anne said.

The report, a bi-annual review of global property markets from the perspective of institutional investors, says that the European property investment market has picked up ahead of the fundamental economic recovery, as investors seek to capitalize on a window of opportunity. Even in the strongest European economies, employment growth is not forecast to return until 2011, which is weighing down on the demand for space to occupy. As such, rental growth is expected to be driven more by supply constraints than buoyancy in job growth

The report also predicts continued strong performance in Asian property markets, as the region’s economic recovery gathers pace and rental growth re-emerges in some of its tightest markets. Australia looks a favourite destination for investors seeking exposure to Asia Pacific markets.

North America property investment is also likely to see increased interest with investors pursuing US assets whose prices may have over-corrected since 2008. Canada’s market is also looking opportune: as its financial services sector has been more resilient than that of its southern neighbour.

"Overall, there seems to be a steady but tentative recovery across global property markets – though largely confined to well-located, prime assets let 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," Anne Koeman added.

ENDS

Notes to Editors

PRUPIM is a top 20 global real estate fund manager with around £15 billion invested in a broad spread of properties across Europe, North America and the Asia Pacific region. It is part of M&G, the investment arm of Prudential plc in the UK and Europe.

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