Germany tops European property prospects

Central Europe has been identified as the region with the strongest property prospects over the next five years.

Research from the Scottish Widows Investment Partnership (SWIP) analyses the European property market, on a risk-adjusted basis and finds that central Europe – specifically Germany - remains at the forefront of the continent's future.

"The European property market is creating some interesting dilemmas for investors. We expect the demand for quality to continue as investors look for solid returns in difficult economic conditions," said Robert Matthews, head of international property at SWIP.

"However, as prospects decline in the core Western European markets, this may encourage some investors to consider less mature markets such as Moscow where prospects are stronger, albeit at a higher risk."

Looking across all sectors and countries in continental Europe, total returns are expected to slow for the remainder of the year before picking up in 2010, according to the SWIP research.

Overall, the most vulnerable markets are those more heavily exposed to consumer debt and to the financial services sector.

"Our research into the Central European markets highlights that total returns and rental growth prospects do not tell a complete story," continued Mr Matthews.

"As with any investment, the potential reward must be balanced with the risks. Our research includes analysis of liquidity, currency risk, transparency and volatility of the sector to establish a more thorough picture of the market.

"Under this analysis German cities dominate the list."

The credit crunch is expected to continue to affect investor sentiment throughout 2008 and 2009.

However, cross border investment continues to be an important feature of the European property market but SWIP's research has identified that investors have become far more selective.

Finally, the fund managers expect the trend for purchasers to focus on prime stock with good tenants to continue as quality remains crucial to property investment in Europe.

Chris O'Toole