EUROPE - European real estate faces a "long, slow haul" to recovery, according to the latest report from the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC).

The Emerging Trends in Real Estate Europe 2010 report revealed industry concerns over the outstanding mountain of real estate debt worth hundreds of billions of euros.

The report found the real estate industry is  still apprehensive as to how the situation might play out over the coming months: will financial institutions sell assets and loans, or will they continue their so-called policy of ‘extend and pretend'?

The study said the challenge for the real estate sector was compounded by uncertainty over how, and when, European governments would begin to stop and reverse their fiscal stimuli. And many survey respondents said they feared an abrupt withdrawal of the stimulus funds could derail the recovery.

"Europe's economic recovery is underway, but it will be sluggish and uneven," said Alexander Otto, chairman of ULI Europe and chief executive at ECE Projektmanagement in Germany.

"We are looking at a crawl back up the hill, and how much values recover will depend on where Europe ends up economically against global competition."

The report also found that Germany was viewed more favourably for investment and development than any other country, thanks primarily to its broad economy.

Munich and Hamburg, in particular, were ranked by the report as the top two prospects in 2010 for existing portfolios.

"The diverse economic base and even balance between supply and demand has kept office markets in both cities healthy, making them an appealing choice for investment," Otto said.

Paris was ranked third by Emerging Trends in terms of prospects for existing portfolios, edging out London in part because there is a general perception that it has a wider economic base and is less dependent than London on the financial services sector.

Interviewees pointed to the low level of vacancies in Paris, raising its ratings for investment opportunities and, to a lesser extent, for development.

Investor sentiment regarding London has also "improved significantly" from 2009, primarily as a result of a market correction led by an infusion of assets from the Middle East and Asia. The city ranked fourth in the 2010 study for investment in existing properties and first for new acquisition opportunities.

"Transparency and liquidity attract investors who would not consider other markets, and this is holding true for both London and Paris," said William Kistler, president of ULI Europe, Middle East, Africa and India.

"These markets have strong interest from non-European investors. 2010 is all about playing it safe and avoiding risk."

The other markets making up the rest of the report's Top 10 markets for existing property performance prospects were Vienna, Milan, Istanbul, Berlin, Rome and Frankfurt.

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