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UK commercial property market expected to perform more poorly than France and Germany

The UK sector is expected to do worse than the commercial sectors in both France and Germany, said Moody's Investors Service.

It is also predicting that by the end of the year, valuations in Britain may have dropped as much as 45% from their peak before the credit crisis started in 2007.

In a report on European commercial mortgage-backed bonds it also said that French real estate may fall as much as 20% and predicted a 15% decline in Germany.

Sales of bonds backed by European commercial mortgages totalled €6.3 billion last year, an 89%decline from 2007. Issuance tumbled because investors shied away from hard-to-value assets as banks reined in property lending, the report said.

'To stop the downward trend and for the commercial mortgage-backed securities market to reopen to a meaningful extent, the availability of financing for commercial real estate must recover. This is highly unlikely for 2009,' analysts said in the report.

Moody's downgraded 55 bonds backed by commercial mortgages last year and boosted the ratings of 11, the report said. Falling property prices will continue to 'negatively impact' ratings this year, the report added.

Moody's is also downbeat about the rest of Europe, Africa and the Middle East with the outlook remaining muted. It described investor sentiment as weak and added that any improvement would not come until lending increases and prices stabilise.

'We believe that the availability of financing for real estate must recover with property values stabilizing and the capital markets must return to some kind of normality,' the report concluded.