For many cities in the EU, 2011 will not be the year that property markets will recover and there is likely to be a widening divide that reflects a widening gap between investment hotspots and second tier property markets, according to the Emerging Trends in Real Estate 2011 report published by PwC (PricewaterhouseCooper) and the Urban Land Institute (ULI).

Some of the 600 respondents expressed serious concerns about areas outside of the prime regions, even within the same country. With capital so risk averse, winning cities like Munich, London and Paris will continue to absorb investment because of very strong tenant demand, the report says. Other investor favourites are likely to be Istanbul, Stockholm, Berlin and Hamburg.

Property investors are expected to avoid Dublin, Athens, Lisbon and Budapest and even within the most favoured markets, investment will be drawn mainly to the prime buildings, the report predicts. The result is that values for secondary properties will remain at distressed levels and decline further in the months ahead.

Last year the industry was concerned that the large amount of debt maturing across Europe over the next five years would prevent banks from undertaking new lending, but the new questions for 2011 are how much impact Basel III (new banking legislation that states that all banks must hold 4.5% in common equity by January 2015, then eventually a further 2.5%, totalling 7%), will have on the appetite of banks to lend to property and, when they do, how expensive this debt will be, the report points out.