An estate agents sign advertising a commercial property 'To Let' hangs on a building in Dublin, Ireland, on Friday, Nov. 5, 2010. Ireland is accelerating efforts to cut its budget deficit as European Central Bank President Jean-Claude Trichet swings behind the country's drive to avert a European Union-led bailout. Photographer: Aidan Crawley/Bloomberg

Sharply rising investor demand for European property is fuelling a battle for assets that is driving prices up and causing fears of a renewed bubble, according to new research.

Investors are pushing into riskier markets such as Spain and Ireland , riskier activities such as development, and lower quality assets known as secondary property, a report by PwC and the Urban Land Institute has found.

Investment in European commercial property hit the highest level since the credit crunch in 2013, separate data from CBRE show. The data show that activity was up 21 per cent year on the year to €154bn.

Investors around the world have stepped up their allocations to real estate assets over the past couple of years, as low interest rates and governments’ quantitative easing programmes create a low-yield environment in which returns are hard to achieve in many asset classes. As a result there had been a “huge capital push” into Europe’s biggest real estate markets, said Simon Hardwick, a partner at PwC.

But Joe Montgomery, European chief executive of the Urban Land Institute, cautioned that this demand did not necessarily reflect economic fundamentals. “With limited signs of tenant demand and rental growth [in some markets], questions remain as to how far the recovery can go,” he said.

More than half of those surveyed by PwC said that prime European property had become overpriced as a result of the huge demand. “Intense competition for the limited supply of suitable property will inevitably continue to have an impact on prices, particularly in global gateway cities including London,” Mr Hardwick said.

Most transactions were in the UK and Germany, but CBRE’s data showed the fastest levels of growth in peripheral economies such as Spain, Portugal and Ireland, where property markets have been severely depressed in recent years.

Jonathan Hull of CBRE said: “Opportunistic investors are targeting what are seen as recovering markets. At the same time there continues to be very strong demand for core investment product in central business district markets such as central London and the major German cities.”

Despite having been a no-go area just a couple of years ago, Dublin’s property market is now one of the hottest on the continent, according to PwC’s research. With Ireland having seen a flood of deals, investors are beginning to focus on Spain, the research found.

Investment into European property by Chinese investors tripled year on year to more than €3bn, new figures from Real Capital Analytics show. Joseph Kelly of RCA said: “Wealthy individuals, developers and insurers have become increasingly active across a broader range of property types, lot sizes and European locations.”

China’s financial regulator relaxed overseas investment rules last May, allowing insurance companies to buy foreign real estate. The regulator also doubled the proportion of capital that Chinese insurers can place into real estate assets, from 10 per cent to 20 per cent.

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