UBS has acquired a €50m Munich office block for its recently-launched European office real estate fund, and expects to buy two more offices in Paris. The net initial yield from the German property is 8%.

The UBS (Lux) Euro Value-Added Real Estate fund looks for a net internal rate of return of 12—14%.

Germany's improving economy has edged its office market out of weak fundamentals. Business development manager Mark Chamier said: "We've been cautious on Germany in the past but we've become more positive on some German cities as we've become less positive on Italy."

But he added that the German economy had a long way to go. "We're not overly excited by Germany but the office sub-sector has had a good run and we're expecting it to continue."

The fund's interest in the German market is confined to Munich and Dusseldorf, where high vacancy rates in the urban periphery have not afflicted the city centre. "The macro view in the countries we're looking at is important but we're a repositioning fund and if we find the right asset in Germany, we'll take it. It depends on a correct valuation and the specific deal," he said.

In Paris, the firm expects to close two new deals for office properties within the first quarter of this year. The first is a partially vacant property in need of restructuring, the second a forward-funding deal.

Low vacancy rates and a shortage of office space make the Parisian market particularly attractive. A report published recently by LaSalle Investment Management cited the French office sub-sector, with German retail space, as among the region's most promising prospects. The UBS fund is also eyeing property in Brussels.