The real estate investing arm of Invesco has said that pension funds can benefit from strong long-term return prospects in depressed Eurozone property markets such as Spain

Simon Redman, Invesco Real Estate's head of product management in Europe told a London press conference that in a number of markets "compelling opportunities are available as we've reached the low point of the cycle."

Redman argues that "it is political uncertainty rather than economics which is holding back markets." He says that if a solution to the region's public debt problems can be reached over the next few years, a host of companies can take advantage of a cautious approach in recent years to invest savings and expand, driving up commercial property prices and rents in the process.

Invesco's view is that the recent troubles in European property markets have created two sorts of opportunities for pension funds.

Office space of major city centres like London, Paris and Stockholm has proved itself to be resilient even while other parts of their respective countries and cities have suffered strong property downturns. Occupier demand has kept rent prices high, providing a strong yield for defined benefit pension funds "which are mostly mature and looking for a stable outcome" said Invesco Real Estate's European research director Simon Mallinson.

Mallinson explains that international capital has helped ease drops in office property markets in major cities as "corporates from Asia and Latin America have taken advantage of low rents to develop a presence in Europe."

On the other hand there is "an opportunity for investors with long-term horizons to take advantage of low prices" in the so-called 'secondary markets' away from major cities and in some big cities hit badly by the crash, says Mallinson.

Mallinson sees Madrid, for instance, as being a property market "in which we see some upside in the medium to long term. Apart from the banking sector, the corporate side is holding up quite well there and all the problems are due to government debt".

In contrast to other managers who have shed holdings of Spanish property since the bubble burst in 2008, Invesco still hold 5% of its main European property fund in Spain. 60% of it is invested in the Eurozone, but the vast majority of that is in France and Germany.

The fund is currently overweight in office property and Invesco expect total annual returns of western European office holdings of 6.1% over the next five years.

dbillingham@wilmington.co.uk