EUROPE - The scramble for quality real estate is getting tougher despite continued macroeconomic uncertainty, German real estate company IVG noted in recent reports on the European markets.

In the 80 countries included in IVG's 'European Office Real Estate Markets 2011' report, the office rental market has recovered, and a further upward trend is likely in the years up to 2013 - "especially since virtually no new space will be completed up to the end of 2012 and the level of activity in the construction of new buildings will remain moderate subsequently because of the restrictive conditions of real estate financing".

According to the authors of the report, investors will try to avoid the "bottleneck of well-let properties in preferred locations with correspondingly high price rises" by looking at riskier investments in Central and Eastern Europe.

Another alternative will be "modern but problematic" properties that tend to have vacancies or renovation costs, if they offer sufficient return.

Older buildings will remain off the buying list of investors, and the structural vacancy at older premises in many locations is therefore set to fall only slowly, "as economic growth is proving too weak in many European countries due to the financial crisis and debt levels", authors Thomas Beyerle and Oliver Voss said.

Germany is a case in point, as shown in the separate country report 'Market Report Germany 2011'.

The report said: "Whereas high-quality office buildings in attractive secondary locations are also set to profit increasingly from improved economic conditions, the upturn will bypass older buildings of average quality."

According to IVG's scoring model, Munich and Hamburg were identified as "he most attractive locations for office building investments in the long term ahead of Stuttgart, Frankfurt and Cologne.

"At the lower end of the list are those regional centres with a stronger industrial base or with structural adjustment problems," the authors said.

They also warned that the limited availability of credit, "due not least to the new Basel III regulations", would continue to pose an obstacle to speculative project developments and the realisation of opportunistic strategies. 

They said, despite the economic upturn, there are "still persistent downside risks in general" in the German market.