EUROPE - Investors can generate "acceptable or attractive" returns from most of the European markets over the medium-term, according to a report by Invesco Real Estate.

The investment manager's Real Estate's European Market Outlook for Autumn 2008 has predicted the recent re-pricing of property will enable competitive returns in over half of the markets reviewed over a five-year holding period from mid-2008 to mid-2013, despite the financial turmoil and market uncertainty.

The UK as been identified as the key market to focus on, with re-pricing having been the most dramatic.

But the research also reveals Germany and markets in Central and Eastern Europe (CEE) as having decent return prospects, resulting mainly from relatively stable yield and rental growth profiles.

The re-pricing in France also points to opportunities, according to the report, but further reduction in values is expected as a weaker outlook for the occupational market is taken into account.

Invesco forecasts strong rental growth over the next five years from the CEE region, as well as in the major cities of Germany - with the exception of Berlin - and in a number French cities.

Of the 41 office markets covered by Invesco, 27 are expected to provide acceptable or attractive returns, however only UK regional office markets and a handful of European cities are expected to achieve strong outperformance.

Office markets in Spain, Italy, Belgium, the Netherlands, Ireland and Denmark are expected to under-perform as a result of low yields and the limited potential for rental appreciation. 

Retail markets are expected to be hard hit, as falling house prices, rising unemployment and smaller disposable incomes reduce retail sales growth, lowering demand from retailers and rental growth.

German and CEE retail markets are the exceptions, as the recent reforms of German trading laws and the strong medium-term outlook for consumer spending have prompted an influx of international retailers, boosting demand.

Invesco has warned, however, that the volatility of currencies could quickly swipe out the feel-good factor and insisted the retail market remained exposed to the impact of inflation on discretionary spending.

The impact of the looming recession is likely to affect those economies where house prices have fallen dramatically and where indebtedness is highest, such as the UK, Spain and Ireland.

However, Invesco predicts most markets will begin showing signs of recovery in the second half of 2009 and most economies will return to trend growth or above by 2011.
 

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