Real estate yields in the peripheral countries of the eurozone will move out as investors start demanding higher risk premiums for a eurozone break-up, according to Sylvain Broyer, head of research at investment bank Natixis. Real estate pricing within the eurozone does not yet reflect the possibility that the contagion of the crisis won’t be stopped and that a ‘two-euro’ system may emerge, he added.

At a joint briefing, Mahdi Mokrane, head of research and strategy at AEW Europe, said that his firm had analysed core real estate markets in the eurozone on the basis of two scenarios: the low possibility that the eurozone will experience a catastrophic break-up and the higher possibility that it manages to weather the crisis, but faces a protracted period of anaemic economic growth.

AEW weighted the risks of countries exiting the euro to produce an average possibility risk yield premium. For Germany, the Netherlands, Austria and Finland, there is no risk, based on the state of their public finances, Mokrane said. However, France and Belgium chalked up yield risk premiums of 10 bps, followed by Spain and Italy with 90bps and 50 bps respectively, and Greece, with a whopping 375 bps.

Whatever the outcome, core long-leased properties in the eurozone are expected to attract investor interest, noted Mokrane. ‘But there is something wrong with pricing risk when Milan offices are being offered at yields of 5% and core Spanish retail at 5% in the middle of the sovereign debt crisis.’