REAL ESTATE - UK property derivatives in the first quarter of 2007 chalked up 125 transactions worth a record £2.9bn (E4.3bn).

This is the equivalent of 10% of direct investment in real estate in the UK, according to figures published by IPD.

The index-maker also revised figures for Q4 2006 from £572m of new trades to £2.77bn, taking into account trades based on the December index.

Iain Reid, chief executive of Protego and chairman of the IPF Property Derivatives Interest Group, said above-expectations Q1 trade volumes could be the result of a backlog at the beginning of the year as traders waited for the new index to come out.

"There’s a seasonal aspect to it but the market is definitely growing," he said, adding that there had been an increase in the number of banks and property companies willing to conduct transactions.

"We can’t tell who’s doing the trades [IPD does not release these data] – we don’t even know which banks are doing it or who the counterparties are. But it’s pretty much raw growth," he said.

The IPD report also revealed an increase in the size of transactions from around between £12—£14m to an average size of £18m .

However, Reid said that figures suggested an acceleration of the derivatives market rather than a step change. "There have been continual breakthroughs," he said.

Data published by IPD last month showed a 300% increase to €5.2bn in trading in UK commercial property derivatives over the previous years. Reid attributed "exponential" growth to the fact that "the facility they offer is irresistible".

Deals worth £7.6bn have been completed since the market launched in 2004.

A second survey published last week by Jones Lang Lasalle found growing US interest in real estate derivatives but reluctance among potential investors to enter the market.