THE RECOVERY evident at the top end of the European real estate market over the past 18 months has seen investment interest concentrated at the prime end, and this will continue for the foreseeable future, according to a new report from agents CB Richard Ellis.

Michael Haddock of CBRE said there were four aspects of the market that favoured prime over secondary property at the moment: on the capital markets side, investment activity was being driven by investors who were most institutional in style and lenders who were only interested in lending against prime property.

On the occupier side, where there was demand it was focused on prime property but the lack of development activity meant that this was also the part of the market where there was the potential for supply shortage

That the property recovery has been focused on the prime end of the market has also been illustrated by a new CBRE analysis of the UK market. This shows that while prime real estate has seen capital value gains of more than 25 per cent since June, 2009, secondary property has generally seen none. In fact, in some sectors secondary values in the UK have continued to weaken during that period.

Sean O’Brien of CBRE in Dublin said the vast bulk of demand for prime investment property in Ireland was emanating from overseas buyers such as German funds, whose benchmark was bond yields in their own jurisdiction so the much- publicised Irish bond yield was irrelevant to these buyers.

“In any event, most astute property investors invest for the long term and don’t focus on short-term interest rates movements or current bond yields when making an investment decision,” he said.

A separate report published by CBRE shows that London captured 27 per cent of all cross-regional investment transactions during 2009 and the first half of 2010.

Unsurprisingly, the new analysis also showed that overall real estate investment activity has been substantially lower during the recovery period than was the case during the boom market of 2006 and the first six months of 2007. On average, the fall in investment activity has been just over 70 per cent but the decline in North America has been much greater, while other regions (Africa, the Middle East and South America) have seen property investment activity increase.

Of the €22.4 billion of cross-regional investment activity recorded over the last 18 months, over €6 billion has been invested in London. The city was also the world’s most important market with buyers of 27 different nationalities competing for acquisitions.