NORWAY - Europe is good but Norway is better, according to a property market report published by Close, the independent merchant bank.

The report forecasts rental growth across the continent except the UK but, more specifically, warns although the €840bn European office market is in a growth phase, with limited supply pushing rents up in most markets, yields have likely bottomed out in prime commercial.

In contrast, according to Close, retail oversupply in markets with weaker fundamentals could jeopardise otherwise expected sector outperformance.

Maria Grubmueller, head of research at Close's real estate division, suggested Norway was now the market to beat. In an interview with IPE Real Estate, she said "the story is compelling".

She pointed to macro factors including above-trend Eurozone growth of 2.8%, low unemployment and strong consumer confidence.

Norway is just over three years into an economic upturn, with a transparent property market characterised by strong growth in office in Oslo, low vacancy rates and robust demand.

Close's soon-to-be-announced first acquisition in the Norwegian market is a novelty in a market dominated by domestic investors. Although details of the portfolio acquisition have yet to be announced, it is an Oslo-dominated mixed portfolio and the seller is understood to be an overseas investor.

"It's riskier to go to other cities because there's just not that much information. In this case, we had sufficient information with sufficient market transparency," said Grubmueller.

"Most deals are done domestically and there's just not that much new space coming onto the market." She cited the lack of supply in office, with none in retail, and the fact that rents have risen above 60% in Oslo.

Close last week launched a European Property Investment Portfolio (Europip) sub-fund focused on commercial, and promising a 9% return. The fund targets UK pension funds seeking diversification outside their domestic market.

It will invest in mature European markets, with a 5% holding in Central and Eastern European property through another of its own funds. The fund could invest directly in CEE property in the future, said Grubmueller.

Despite the "attractive" lack of modern properties, she said the CEE region would likely "go through a period of oversupply. Developers haven't learned their lessons. We'll be selective, especially with retail.

She added: "It isn't to do with risk. If we thought it was that risky, we wouldn't invest there at all. CEE is becoming more core, in any case, if you leave out Romania and Bulgaria."