EUROPE - Institutional investors will stick with mature European core assets next year despite potentially higher yields in southern European markets and Hungary, according to IVG.
Head of research Thomas Beyerle told IP Real Estate a downturn in investor sentiment from relatively upbeat first-half expectations would reinforce sentiment-driven investor preference for 'safe haven' markets such as the UK, Germany and Poland.
"We talk to UK investors, and they want to invest in Germany," he said. "Why Germany? Because what they really want to do is keep their money in their pockets."
Pointing to higher yields in Spanish real estate, Beyerle added: "Judging by the fundamentals, it makes sense for investors to take a closer look at Hungary and Southern European markets instead of focusing on the City of London and Frankfurt.
"If you look at those markets, you'll find an attractive product at a reasonable price. There is investor interest in the Hungarian real estate market because it's an attractive environment with new buildings and yields potentially above 7%. But, as an investor, if you hear the Hungarian finance minister on the BBC, you'll get very nervous."
He said cautious sentiment had been compounded by the lack of available finance for non-core markets.
"If you try to get debt from a bank for an investment in the Spanish market, you'll give them a heart attack," he said.
IVG's risk model indicates prime yields in core markets are likely to remain stable through 2012 as a result of the yield differential on real estate and government bonds.
In a recent note, it said: "Real estate will remain attractive as the only manageable risk class for investments."
Beyerle suggested core prices could rise even higher, but he denied there was a risk of a bubble in some markets because of a deep pool of potential buyers providing investors with a potential market exit.
"These are assets in core, core, core markets - not in the middle of nowhere," he said.
"Potential exit scenarios are driving prices."