Paris is the top overall property investment market for risk-adjusted returns, according to a real estate investment report, 'Emerging Trends in Real Estate® Europe 2006', recently published by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PWC) LLP.

Paris reigns supreme, for the second year running, as the top overall investment market for risk-adjusted returns out of 27 markets surveyed by ULI and PWC.

“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,” says the Emerging Trends 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.

London runs a close second to Paris in the overall investment category, with low risk and solid total return prospects: investors in all property sectors find it a “buy or hold” market in 2006.  Many respondents see London as a recovery market gathering pace in 2006, according to Emerging Trends.  Respondents believe the office sector has two to three good years of performance ahead.

If there is a weak spot in London, it is in the retail sector. “Only 24 percent of respondents rated London a ‘buy’ market for retail, whereas 32 percent rated it a sell,” according to the survey. One noteworthy item for the UK is the introduction of REIT vehicles to the market, which will come into force in January 2007, which are likely to shift the landscape slightly in the short to medium term.

Helsinki jumped to third place from sixth place for overall investment prospects in 2006. Office and retail earned high ‘buy’ recommendations with 65 percent and 62 percent of respondents respectively; less than 5 percent think 2006 is a good time to sell these properties. “Respondents rate rent increases and capital growth in the “modestly good” category whereas market balance and development simply “fair,” according to Emerging Trends.

Madrid takes fourth place in the top 10 rankings, reflecting investors’ sentiment that the Spanish capital is reaching a turning point. “Solid prospects for industrial are expected in 2006 as its location creates opportunities in the main corridors from Madrid to Barcelona, Valencia and Toledo. Respondents expect to see a rise in demand from tenants and investors in these areas,” says Emerging Trends. Infill development is favored with smaller centres and development around transit stations.

Rounding out the top five for investment prospects is Barcelona, which beats Paris in its outlook for both rent increases and capital growth. “On many levels, Barcelona should reign supreme over Paris…and is on par with Paris for its supply/demand balance and development outlook,” says Emerging Trends. Barcelona is lacking in size and liquidity — and offers more risk — which pushes it down to fifth place overall.

Overall European real estate investors are optimistic about the industry’s potential to generate healthy returns over the coming year, according to Emerging Trends.  With an overabundance of capital continuing to drive markets, “investment prospects for 2006 have improved for both real estate and equities relative to a year ago,” says the report.

Based on surveys and interviews with more than 250 of the industry’s leading authorities, Emerging Trends states that “those surveyed still believe that real estate has the best outlook relative to other asset classes despite the phenomenal performance of the past year.”

The Urban Land Institute (www.uli.org) is a nonprofit education and research institute supported by its members. Its mission is to provide responsible leadership in the use of land in order to enhance the total environment. Established in 1936, the Institute has more than 28,000 members representing all aspects of land use and development disciplines.

PricewaterhouseCoopers LLP is the world’s largest professional services organisation.