EUROPE - Moody's last week issued an 18-month ‘negative' rating for European real estate, blaming "fundamental credit conditions" - but claimed Russia would continue to offer value for investors.

Tighter and more expensive credit will continue to slow property investment throughout the continent, especially in the UK, the ratings agency said in a report, as falling values will make funding harder to secure, despite -for the moment - a "relatively healthy" economy.

"While national and regional real estate markets in Europe do not move in lock-step with each other, investor demand for commercial and residential property has been affected by a lack of availability and increased costs of funding, and property values are falling as a result," it said.

The report's authors claim there is evidence of cooling occupier demand for office and retail - even though it held well in 2007 - and slower rental growth in Paris, Madrid and London.

Behind declining rents is falling tenant demand driven by sector-specific sub-prime impact on financial services companies, "rather than by an economic downturn across Europe", according to Moody's.

Liquid investors should be looking for opportunities in markets where real estate yields are increasing faster than borrowing costs, it concluded.

In a rare exception to an otherwise negative outlook, the report noted rising office rents in Moscow against the tightening of funding availability.

"Property markets such as Russia are likely to prove more resilient," it said.

"In Russia, the property market is beginning to catch up with the country's sustained, solid economic performance over the past six years.

"Capitalisation rates are still higher than in Western and Eastern Europe, making Russian property attractive to international investors who can manage their currency exposure."

In contrast, developers continue to face exposure to the risks of unpredictable licensing and legal frameworks, including a requirement for mandatory speculative developments.

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