Invista: France, Germany tipped as EU markets diverge

Property performance across Continental Europe is expected to diverge over the course of 2008, as the market digests the impact of the global credit crunch, according to the latest research from Invista Real Estate Investment Management published on Wednesday. In these conditions, the report highlighted that investors need to look at local economic growth prospects, supply dynamics and leasing market fundamentals.

Focussing on the prospects of local European markets, Invista's European investment report shows that Ireland and Spain face slowdowns in economic growth, and with higher risks from over-supply in the property markets, they are expected to perform less well on a relative basis than other countries in Europe.

Medium-term performance in core Western Europe, including France, Germany and Benelux, however, is expected to benefit from more stable economic growth outlooks and constrained supply pipelines. Occupier demand is predicted to remain steady in markets with improving growth prospects and exposure to tenants across a broad range of business sectors. In particular Norway, France and Sweden were the leading markets in Europe, with strong levels of capital growth underpinned by healthy leasing market dynamics.

Invista expects European property performance to moderate in 2008, as tightening credit markets continue to impact the property market. However, Invista's view is that capital value declines will be less significant than those recorded in the UK since mid-2007, largely because the capital growth experienced in Continental Europe was substantially lower than in the UK property market.

Tim Francis, head of Continental European research at Invista, said: 'In uncertain capital markets, where returns are expected to vary between counties, regions and sectors, investors need to identify those property markets with the potential for strong income performance. A key factor is the ability to assess the relative strength of local economies, leasing markets and property development pipelines, in addition to future pricing expectations.'