EUROPE - Tightening of supply across office, retail and industrial has contributed to the European property market putting the worst behind it, despite the euro-zone sovereign debt crisis and austerity measures across much of the region, according to Prupim.

It said its macro analysis of the region split down a North-South divide, with the strongest investor demand for Paris and the Nordics.

In contrast, high yields in the peripheral economies have continued as a result of investor concern over market-specific risk and weak fundamentals.

In office, constrained supply in some locations has pushed up rents, despite weak demand elsewhere and notably high unemployment across peripheral economies. As the most liquid European sector, and with positive rental trends, offices attracted the greatest investment volumes. 

With inflationary pressures squeezing consumer spending, the recovery in retail demand "is modest at best", according to Prupim.

However, with little new space coming to the market and rental falls having bottomed out, prime rents are increasing in northern European markets.

Prupim's report said: "Prime retail is viewed as a safe haven by many investors and, in stronger economies, the sector has been one of the main beneficiaries of the appetite for prime stock."

Despite German manufacturing driving the recovery in industrial, leasing activity has been slow, and the subsector has yet to pick up on the pricing recovery seen elsewhere. Prime rents have stabilised but are unlikely to grow, despite a significant drop in speculative supply.

In fact, across the region, investors are targeting prime assets attached to secure income, with little or no shift in pricing for secondary assets. As investors struggle with prime pricing, some will target riskier properties in weaker markets - though most will likely wait for stronger confidence in the recovery.

The report added: "The fragility of a European economic growth coupled with its very apparent risks mean demand is likely to remain concentrated on prime assets in core markets and sound fundamentals."

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