MORLEY Fund Management, the United Kingdom's largest real estate investor, has spent "hundreds of millions" of pounds this year betting British shops and offices won't lose as much in value as property derivatives suggest.

MORLEY invested at least 500 million pounds (US$997 million) in 2007 on the opposite assumption, Nick Mansley, director of property strategy and indirect investment, told Bloomberg News last week. He declined to say exactly how much MORLEY has invested this year.

"Recent pricing implies a near-20 percent fall in capital values by the end of 2009," Mansley said. "That doesn't seem very likely."

Commercial property prices have slumped 16 percent since July as banks have made financing transactions harder and more expensive. Derivatives prices suggest that real-estate values will decline 22 percent this year and next, according to Tradition Property, a London-based real estate derivatives broker.

Morley, the fund unit of Aviva Plc, oversees real-estate assets of 28 billion pounds. Standard Life Plc's money-management unit has adopted the same strategy as Morley, though on a smaller scale. Standard Life Investments has invested "tens of millions" of pounds this year, Andrew Jackson, head of property strategy at the Edinburgh-based fund company, said. He declined to be more specific.

The UK real estate derivatives market is based on indexes created by Investment Property Databank Ltd. The market is growing as banks hedge positions and loans, hedge funds trade them, and real-estate investors such as MORLEY use them to avoid having to buy and sell properties.

"The first quarter will likely have resulted in record levels" of trading, said Nick Nabarro, a senior manager at London-based IPD.

"Anecdotal evidence suggests some institutions have been coming back into the market."

Derivatives trading has increased as the UK commercial property market has deteriorated.