EUROPE - Core European markets offer only small pockets of value - but European Central Bank (ECB) action to limit contagion has averted a Lehman-style crisis, an IPD audience heard earlier today.

CBRE Global Investors chief economist Sabina Kalyan said the main risk now for the European real estate market was not economic but political after the ECB showed itself willing to "act like the US".

"The key risk isn't the financial markets," she said. "It's the prospect that the Greek electorate will be unwilling to play ball."

Bucking an uncharacteristically bullish forecast, Kalyan warned that the underlying fiscal crisis still created the potential for a Japan-style scenario, encouraged by pressure on governments from the Troika - comprising the EU, IMF and ECB - and rating agencies to look prudent, despite long-term economic damage likely to be done by short-term austerity measures.

"The near-term good stuff will damage economic growth - and could mean they end up not reducing the debt-to-GDP ratio," she said.

Kalyan predicted a European recession this year that could carry on into 2013 - but added that the continent's economies would emerge stronger.

"It will be a tough three or four years, but they will emerge with reforms in place they never had the courage to implement before, structurally solid," she said.

In the meantime, she contrasted European austerity with US policy, cushioned by the upcoming presidential election and a safe-haven currency.

"It means they don't have to cut - they can grow their way out," she said.

By contrast, the only European economy to see above-trend medium-term growth will be Romania.

Elsewhere - including in the UK, Sweden and Poland - below-trend growth will result in falling rental values and rising yields.

In a panel discussion focused on European real estate markets, Matt Richardson, research director for Europe at Fidelity, said recent activity in London and Paris prime had been driven not by property funds but in the interests of wealth protection.

"Prime looks cooked," he said. "Secondary is the only place you can go for secure income and diversification. In any case, prime has less to do with location and more to do with lease length at the moment."

Given the macroeconomic outlook, Kalyan argued that opportunities still exist in prime industrial in port cities, though not in the office sub-sector.

However, she warned would-be secondary investors to factor in macro forecasts.

"Prime has definitely compressed," she said. "That leaves a whole swathe of the market defined as secondary, and some it must be good quality.

"But if you take a bet on secondary, you have to be in a market where economic growth is likely. The question in Europe is when that recovery is going to come."