France continues to attract property investors

A new report titled Emerging Trends in Real Estate Europe 2006 has pointed to Paris as one of the areas most likely to drive the property market this year.

Produced by the Urban Land Institute (ULI) and PricewaterhouseCoopers, the report has now identified Paris as the top overall investment market for risk-adjusted returns for the second year in succession.

"The shine is unlikely to come off investors' views about the Paris market in 2006. In this capital-rich, product-poor property environment, the city also gets top marks for its size and liquidity," read the report.

"However, this enthusiasm for Paris has driven prices up and yields down, leading some investors to look toward second-tier French cities, such as Lyon, for investment opportunities."

Stuart Law, managing director of Assetz, has observed the same trend but has highlighted the region of Languedoc as a key area of growth in the next few years, with relatively cheap prices providing investors with numerous possibilities.

London came second in the list on the basis of low risk and solid return prospects, while the report indicated that many investors have observed the recent recovery in the UK market and are expecting it to continue during the course of 2006.

This trend will be boosted by yesterday's report from Lombard Street Research which suggested the house market revival in the UK was "sustainable", with mortgage approvals rising throughout the year.

With Helsinki jumping from sixth place to third on the list, Madrid is now in fourth place although UK investors often have a fundamental attachment to Spain and the Balearic Islands and interest is likely to remain high.

Valencia and Toledo were also highlighted as examples of decent prospects for the year, while Mr Law has previously pointed to the advantages of investing around the popular golf resorts in the Murcia region of Spain.

The report has also observed that investors are becoming increasingly likely to take a gamble on a property and this is likely to lead to more investment in emerging markets such as Bulgaria and Cyprus. Where Spain and France remain the safer options, landlords seem to be drawn to the risk-factor of trying something new.

Retail parks and shopping centres are expected to provide the highest total returns in 2006, with hotels following closely behind in the commercial property sector. While residential property only came seventh in the list of total returns, it was noted that investors expect yields to rise this year in contrast to all other sectors.