Aviva Investors has revised its expectations for European real estate downwards but the UK group, BNP Paribas and LaSalle Investment Management argue Europe can offer investment opportunities in esoteric real estate sectors.

According to Ian Womack, global chief executive for real estate at Aviva Investors, his group revised downwards forecasts for European real estate in 2012 due to deteriorating income growth prospects and the fact policymakers have not delivered an effective response to the sovereign debt crisis.

But European real estate has proven profitable for some. BNP Paribas Real Estate saw gross turnover rise 6% in 2011 to €658m. Its real estate activities were concentrated on the French market (64%) although the UK (11%), Germany (11%) and Italy (7%) also helped the investment manager grow.

The majority of its activity was in commercial real estate (78%) with residential real estate clearly playing a secondary role, representing just 22% of its activity. Nonetheless its residential property business grew 17% compared to 2011.

Aviva's Womach recognised prime real estate as the preferable asset in today's markets, although he expects pricing adjustments in the next two years to create opportunities for secondary real estate as well.

"The appeal of safe haven assets in Europe will typically see investors look to the most liquid markets offering strong, income secure assets, such as German, France, Benelux and the Nordics. However, peripheral markets may offer cyclical opportunities for investors, especially given the possibility of very strong policy responses," Womack added.

BNP Paribas Real Estate is already involved in secondary real estate markets such as tourism and student accommodation. In 2011 it invested in hotel chain Hipark's venture to construct a new hotel in Marseille. Hipark plans to construct a fourth building in Serri-Val d'Europe by the end of 2012.

In 2011 BNP Paribas Real Estate developed its ‘Studélites' business line providing no-frills student accommodation blocks in and around Paris. So far it has built 26 student accommodation blocks in Isle-de-France and has expanded outside of the capital in Avignon, Le Bourget-du-Lac, Chambéry, Grenoble, Lyon, Marseille, Saint-Etienne, Valence et Villeurbanne. The group expects two new Studélite buildings to open in Grenoble later this year.

Jacques Gordon, global strategist at LaSalle Investment Management, said niche secondary real estate markets will be the key provider of returns this year as core property markets are likely to underperform.