The Property Fund Investment in Europe 2007 report presents views on the market for property investment based on a survey of 100 leading asset managers across Europe. The report, which covers mass market, high net worth and institutional customer groups, forms part of a series looking at the market for alternative investments in Europe.

When asset managers from the five largest European markets were asked which geographic areas are of most interest to the investors in their home country, most selected Europe as the area that is most popular. They also believed that the majority of investors were looking to invest in mixed use funds rather than in a single property type. When asked which sector the investors in their country preferred to invest in, 53.9% said that mixed use funds was the most popular strategy. The main appeal of a mixed use portfolio is the extra level of diversification it offers investors, as the different sectors of property are not necessarily closely linked in terms of performance. There is a general trend towards favoring the dismantling of regulatory and tax barriers that exist in respect of onshore property funds, although far fewer asset managers believe that a corresponding increase in the regulations governing offshore funds would improve the onshore market.

The commercial property sector is cyclical, so it is important to have a flexible approach if you want to exploit the unique benefits of indirect property investment. The sector’s three key sub-sectors, office, retail and industrial, have all benefited from rising values in the past two years. However, as the market becomes tougher, a property fund’s ability to target niche property companies will be key if it is to continue to produce attractive returns.

At present, returns from quoted European property seem the most attractive. There are two reasons for this. Firstly, Europe is where the final leg in the globalisation of real estate investment trusts (Reits) is about to take place, with the UK and Germany, Europe’s largest real estate market, soon to introduce them. Italian, Scandinavian and eastern European governments are also drawing up Reit proposals.