UK commercial property derivatives 'cheap' -PRUPIM

LONDON, Dec 7 (Reuters) - British commercial real estate derivatives, which are projecting an overall drop in property values of about 15 percent, "look cheap", Paul McNamara, head of research at Prudential's (PRU.L) PRUPIM, said on Friday.

McNamara, a leading UK real estate industry figure and a property derivatives pioneer, declined to call a bottom in property derivative pricing because of the huge amount of uncertainty around, even though derivatives had anticipated the sharp slowdown in the bricks and mortar investment market.

But with recent derivative trades indicating an average 10 percent drop in commercial property total returns next year -- and a 15 percent drop in property capital values -- the market was beginning to look interesting, he said on the sidelines of a Reuters Real Estate event.

"If the UK property market fell 15 percent then it would become unequivocally cheap and there are enough people out there who realise that," he said earlier. "There is capital out there that will put the chocks into this market."

McNamara said PRUPIM -- one of Britain's biggest property fund managers with 19 billion pounds under management spread over around 1,000 properties -- was not about to buy UK derivatives, having successfully sold the market ahead of the downturn.

But he said the firm was tracking market developments.

Britain's 3-year-old property derivatives market offers over-the-counter trading mainly in total-return swaps based on Investment Property Databank's (IPD) benchmark All-Property index for fixed periods, in exchange for the London Interbank Offered Rate (LIBOR) plus a spread.

(See www.reutersrealestate.com for the global service for real estate professionals from Reuters). (Reporting by William Kemble-Diaz; Editing by Quentin Bryar)