EUROPE - The continental European real estate market will reach its lowest level In 2010 but will then encourage fund managers to raise equity again to tap property bargain property, according to research by the Scottish Widows Investment Partnership (SWIP).

SWIP's analysis of the continental European real estate sector suggests capital values will begin to improve in 2010 and predicts the UK's property market will reach the bottom of its cycle before its European counterparts in the second half of 2009, providing greater opportunities for investors.

"SWIP manages money for a wide variety of clients some of whom are likely to be active in the UK market in 2009," said Robert Matthews, head of International Property and Strategy at SWIP.

"We expect the UK market to offer more interesting buying opportunities in 2009 than continental Europe where recovery remains further away."

SWIP, which had £5.8bn (€6.5bn) in property assets at 30 September 2008, is anticipating further capital falls of between 10% and 15% for property in 2009 before values start to stabilise in 2010.

It also expects property to deliver an annual return of 5.8% over three years from the start of next year and 8.6% over five years.

SWIP said it is "continuing to develop products to take advantage of the new pricing" but declined to comment further on the types of products it is developing, stating only that it would make relevant announcements at the appropriate time.

SWIP also claimed investors in the indirect real estate sector will place more focus on leverage and fund governance in 2009.

"Many investors are feeling the implications of high levels of leverage and falling capital values on Net Asset Values. Moving forward, investors will be far more wary of leverage. This will also be regulated by lenders who will be unlikely to lend at such high levels for the foreseeable future," said Matthews.

SWIP, the asset management arm of Lloyds TSB Group, had £84.7bn (€94bn) in funds under management at the end of September.

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