EUROPE - Real estate has yet to price in the risk of euro-zone attrition - hence low yields in markets such as Spain and Italy despite their sovereign debt crises, according to industry analysts.

Speaking at a joint session this week at Expo Real in Munich, Natixis global chief economist Patrick Artus argued that investors in European real estate should price in higher risk premiums to reflect the potential for euro-zone attrition as a result of the sovereign debt crises.

Despite evidence of contagion, Artus described euro-zone dissolution as "unlikely" compared with an orderly default on Greek sovereign debt. 

Meanwhile, AEW Europe research and strategy head Mahdi Mokrane pointed to a "two-euro" scenario comprising a core bloc around Germany and straitened peripheral economies that could be forced to exit the currency.

A dual-scenario analysis by the firm suggests a low probability of "catastrophic breakup", with a protracted period of anaemic economic growth more likely.

AEW's weighting of the relative risk of euro-zone countries exiting the euro came up with a zero premium for Germany, the Netherlands, Austria and Finland based on those markets' public finances.

The risk premium for Belgium and France is 10 basis points, while Italy's risk premium is 50bps, Spain's is 90bps and Greece's is 375bps.

Yet Europe's loss is Asia's gain, according to a 38-fund survey from S&P Capital IQ, which found that most property fund managers remain positive on the prospects for Asian property, based on a widening divide between property performance in Asia and the West in the retail and residential sectors in the first half.

However, the survey revealed diverse rationales for the broadly positive outlook and significant differences of opinion on specific sectors.

While the ING Global Real Estate Fund opted for exposure to Hong Kong over mainland China, other funds were targeting Chinese residential in the expectation of an end to government cooling measures.

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