Every year PricewaterhouseCoopers (PwC) and the Urban Land Institute publish a report called European Property Market Trends that starts with a short phrase summing up the market. In 2008 it was “The fear returns”, and in 2009 it was “Things get complicated”. This year brings a hint of optimism with phrase “We have touched bottom” suggesting the worst is behind us.

Justifying this year’s overall tone of mild optimism the report explains that “more loans are being made, property values are stabilising, and more transactions are being carried out” whilst warning that a weak and fragile economy could still derail the property market recovery. “The fact that we are not still in free fall is an improvement in itself,” said one industry insider, quoted in the report. “2010 will be complicated and very nervous,” said another. The high level of developer indebtedness across Europe and the “colossal” amount of real estate debt that needs to be refinanced in the coming years are further reasons for caution, argues the report.

Spanish Blues

When it comes to Spain, the report is short on optimism. The expect performance of property portfolios in Barcelona and Madrid are bottom of the table for European cities (see table below), underperformed only by Dublin, and when it comes to the outlook for new developments Barcelona and Madrid are once again in the bottom 3, along with Dublin.

The problems with Spain, explain Spanish partners at PwC, include its high unemployment, weak economy, and enormous inventory of newly built housing. Recovery will come to Spain later than the rest of Europe.

Even more pessimistic on the outlook for Spain is Ismael Clemente, real estate director at Deutsche Bank, quoted today in the Spanish paper El Pais. The real estate sector “finds itself in the middle of a downturn” and that “we will start to see light at the end of the tunnel towards 2012 to 2015,” says Clemente.