'Green shoots' point to medium term recovery - DTZ

European real estate investment activity will continue to slow through the first half of 2008 at least, but international investors are preparing to re-enter the market at the right price, global real estate adviser DTZ has said in its European Quarterly research report.

On a relative basis, property yields in the UK are looking more attractive than the past given the recent decline in bond yield, and the market is now seen as approaching 'fair value', according to DTZ. Across Europe, higher property yields are expected with corrections taking place, most notably in secondary cities. However, opportunity funds are standing by, ready to re-enter the market at the right price.

DTZ forecast a moderate decline in European transaction volume in the first quarter of the year but not as much as it was witnessed in the fourth quarter of 2007. In the first three months of the year European investment activity is projected to reach EUR 36-38 bn.

Despite short-term uncertainties, European office properties are expected to remain a popular asset class that will continue to perform well in the medium and longer term; as will prime retail in capitals and major regional cities. With investors becoming more risk averse, a flight to quality is expected to continue to some extent, benefiting prime property. Moscow and Istanbul will offer potential for continued yield compression.

DTZ report's also focuses on the investment wave from the Middle East, much of which conforms to Shariah law. Whilst the UK remains a favoured destination for Middle East investors, there appears to be some appetite to invest in central and Eastern Europe, along with France and Germany. DTZ has also launched a number of Shariah-compliant funds jointly with Middle East investment manager SIRAJ Capital.