After several years of compression, prime property yields are set to stabilise in 2007, according to a report published by the Urban Land Institute and PricewaterhouseCoopers. The report, entitled Emerging Trends in Real Estate Europe, sees only slight further compression this year on the back of a calmer investment environment than witnessed in recent years.

After several years of compression, prime property yields are set to stabilise in 2007, according to a report published by the Urban Land Institute and PricewaterhouseCoopers. The report, entitled Emerging Trends in Real Estate Europe, sees only slight further compression this year on the back of a calmer investment environment than witnessed in recent years.

Speaking at the presentation of the report at the annual ULI conference in Paris Wednesday, ULI Europe president Bill Kistler said the outlook for the European property market remained rosy. 'We all know that this is a cyclical market and there is an underlying feeling of caution. But I was struck by the general level of optimism about Europe. Barring unforeseen circumstances, nobody sees any real dangers in the year ahead.'

Investors are particularly optimistic about the German market, Kistler said, pointing out that Munich and Hamburg had moved up significantly in the rankings of top European markets. 'Even Frankfurt and Berlin are showing signs of life.'

Paris topped the list for the second year running, ousting London from its traditional pole position. Stockholm now ranks third, followed by Munich and Lyon. Istanbul and Moscow offer the best prospects for development and are also high on the list for property buyers, the report said.

For the third year running, shopping centres will offer the best total returns, followed by hotels, mixed-use properties and city centre offices.