Property investors will increasingly look to prime quality assets in core markets over the coming months as the current crisis afflicting the euro continues to develop, according to new research from property consultant CBRE.

The research notes that the two-tier market between prime and secondary commercial property that has developed over the past two years will continue and possibly widen over the foreseeable future. Very low returns on cash and top-rated government bonds will, CBRE claims, continue to fuel demand for prime property yields in Europe’s larger, more liquid markets. This sustained demand for core assets is expected to support ‘robust’ prices for prime property assets.

Outside the prime category, CBRE expects widening disparities in property pricing and performance depending on asset quality and local market conditions. Good secondary property in stronger markets with potential for asset management to add value will, the organisation predicts, continue to attract investor interest. Poorer quality secondary or tertiary property has a more challenging outlook with an ongoing lack of debt finance for investment.

Figures for the first six months of the year show a marked slowing of transaction activity across Europe, particularly in the Southern European markets where sovereign debt problems are greatest. Transaction volumes for the period in Italy and Spain were down by more than 40%.

CBRE economist Peter Damesick commented: 'There has been a shift in capital flows in favour of Germany, Sweden and parts of CEE markets where investors perceive stronger economic fundaments. At the same time the polarisation between prime and lesser quality secondary assets is being reinforced across European markets.'