UK - The value of trading in UK property derivatives doubled to £3.7bn (€4.5bn) in Q1 2008 as investors increased their use of swaps to hedge exposure to real estate, according to figures from the IPD UK All-Property index.

Q1 saw more than 280 derivatives transactions, beating the previous record of 236 transactions in the previous quarter.

"I do expect volumes to continue at the same overall pace, but we should recognise that there seems to be an annual cycle with lower volumes in Q2 than Q1," said Nick Scarles, finance director at Grosvenor and chairman of the Property Derivatives Interest Group. "Lower Q2 volumes would not imply a decline in take-up or interest in the market."

He added: "Europe will progress, but at a slower pace. The rest of Europe is trailing by perhaps two years, and many countries have seen no trades."

Asked whether IPD would face competition from transaction-based indices, which, unlike valuation-based indices,  are not subject to lagging, Scarles told IPE Real Estate: "The quality of the index on which trades are undertaken is important. IPD leads the commercial sector and there are no other indices which are even close in terms of acceptability here.

"With the price of transactions registered with the Land Registry now public, it is possible that transaction based indices will evolve. But transaction-based indices have their own challenges", notably inconsistency and low volumes, continued Scarles.

He added: "Valuation-based indices rely on the quality of valuation, and in the UK the valuation profession have demonstrated greater preparedness to reflect the actual market, so I don't see a significant risk to IPD arising from competing indices in the UK for commercal property over the near term.

"Interestingly, an active derivatives market does provide an indicator of a view of the market even absent actual physical trades, perhaps enabling them to respond more quickly to changes in market sentiment."