Morgan Stanley analysts have forecast a 10% fall in the value of European real estate to the end of 2007 - as the bank's investment management arm boosted its real estate team with two new senior managers.

Concern over the impact of rising interest rates on liquidity led analyst Martin Allen to revise downwards his ratings on real estate companies including Land Securities, Klepierre and Rodamco Europe. He moved all three from equal-weight to underweight.The move follows an earlier research note that suggested it was "time to take some money off the table".

He has indicated that it is "increasingly time to sell, not just underweight".

He said: "Investors focused on absolute returns should start to take money out of the quoted property sector in Europe, including the UK, as rising ‘policy' rates around the world sap liquidity from the global financial system and a large number of new issues in the sector risks creating ‘investor fatigue'." The pessimistic prediction came as the bank's fund management arm boosted its real estate arm with two senior hires. Both fill newly created roles.

As head of German acquisitions, Frankfurt-based James Lapushner will source investments and execute deals. Lapushner joins from Credit Suisse, which will now share his responsibilities between two existing team members, Prashant Bhartia and Ryan Nelson.

London-based Brian Niles joins Morgan Stanley from Goldman Sachs as chief financial officer for Morgan Stanley Real Estate Investing in Europe and manager of the Special Situations Fund III.

Although he would not be drawn on whether the recruitment drive represented a shift in the bank's approach to European real estate, a source at Morgan Stanley described them as "significant hires".

"It's obvious to anyone who follows our business that we're committed to it and that we're increasing our footprint," he said.-