EUROPE – Real estate services firm CB Richard Ellis has teamed up with derivatives brokerage GFI Group to develop a derivatives market based on European commercial property.

The two US-based firm said the derivatives would “unlock the potential” of the market.

"The European commercial property market is huge - estimated at more than $4.2trn (€3.5trn), according to Prudential Financial,” said Steve McMillan, senior managing director for GFI in Europe.

But he said the market was “unsupported” by derivatives, unlike other large physical markets.

“This complicates trading and limits liquidity. Derivatives will unlock the potential of this market by removing physical delivery thereby enabling faster, cheaper and more effective execution of allocation strategies, short-term hedges, risk transfer and geographical diversification."

"Property investors will have an opportunity to trade in new ways and new participants will have easy access to property for the first time," said Martin Samworth, managing director for CB Richard Ellis in the UK.

"The derivatives market in other asset classes has matured to at least the same size as the underlying market within 3 to 5 years. Commercial property has the potential to develop in the same way.”

CBRE said it would not take a principal position in any trades arranged by GFI.

Earlier this month CBRE said pension funds should double their allocation to real estate to combat deficits.