According to the latest research report, produced by Invista Real Estate Investment Management, Europe's economic recovery is gaining momentum but within the EU competitiveness is diverging, with northern Europe generally doing better than the south.
In order to readdress this, Invista says that reforms are urgently needed in some countries, with those on the periphery set to benefit the most from these.
In the property market, the pressures on Europe in the short term are being reflected in the pattern of investment turnover and capital values, where a strong north/south divide has emerged. Invista believes that this will persist further as southern Europe struggles to reduce its debt and reform its economy. GDP growth is forecast to be very subdued over the next five years in the south, significantly underperforming northern Europe, particularly Germany and Scandinavia.
Property valuation movements are starting to reflect this divide and, according to data from CBRE, 2010 saw valuations in Germany and CEE stabilize, while those in France and the Nordics began to increase. CBRE data shows that against this, in the PIIGS (Portugal, Ireland, Italy, Greece and Spain).
Regional valuations remained under downward pressure throughout 2010 and are, on average, around 25% lower than their 2007 peak levels.
Invista believes that Europe 2020, the European Commission's program of economic reforms, could have a positive long term impact on the property sector, notably in Europe's less competitive periphery, with initiatives focused on boosting employment and Research & Development investment, and reducing greenhouse emissions and energy use. In the short term, however, fiscal consolidation, correcting macroeconomic imbalances and ensuring financial sector stability, are set to remain the priorities.
Tim Francis, Director, Continental European Strategy & Research at Invista, commented: "2010 was a positive year in which Europe's economic recovery gained momentum and its property market stabilized following sharp declines in capital values, however, with a diverging economy, the problems on Europe's periphery are indicative of larger issues which are reflected in the region's slowing economic growth rate and lack of competitiveness."