A survey of over 500 leading investors, bankers and developers are bracing themselves for a ‘torrid time’ this year as sentiment falls across Europe’s property markets.

This was the consensus view of respondents to the sixth Emerging Trends in Real Estate survey, published by the Urban Land Institute and Pricewaterhouse

Coopers earlier this month.

While capital for real estate will continue to be in short supply this year, there was uncertainty over when the trend would reverse as US and European pension funds and sovereign wealth funds batten down the hatches.

John Forbes, PwC real estate leader in Europe, the Middle East and Africa, said: ‘People are unsure about how much equity is out there to invest in property and there are a number of issues surrounding when it will come back to real estate.’

The ‘denominator effect’, whereby institutions have become overexposed to property because of the falling values of other investments, is expected to continue to have an impact on pension funds in 2009.

The report said: ‘There is no headroom for them [institutions] to increase their allocation [to property] – or even worse, they may have to cut it.’ The report added that many institutional investors were ‘in retreat’, and that their perception of real estate as a low-volatility asset class had changed because of the fast U-turn in markets.

Some respondents said that most investors are claiming to be affected by the denominator effect, or are so Shell-shocked by the global economic turmoil that they are unable to do anything.

‘Although institutions like pension funds may still have steady streams of cash coming in, their investment portfolios have been pummelled by stockmarket gyrations and their target allocations are in disarray.’

Doubts were also raised over the ability of sovereign wealth funds to invest in property, as they nurse ‘big losses’ on their equities and other investments.'