The New Year has started with a bang for two large property firms as Land Securities shares increased by 0.9% to 2,343p while rival British Lands shares shot up by 1.2% to 1,735p.

Around 10 listed property firms have now agreed to become REITs, investment trust funds that will pay very little or no tax, as most of their earning will be paid out to shareholders as dividends. These are British Land, Big Yellow, Brixton, Great Portland Estates, Hammerson, Land Securities, Liberty International, Primary Health Properties, Slough Estates and Workspace.

Justin Urquhart Stewart, director of Seven Investment Management warns that: "Investors need to be extremely careful about going into REITs at what looks like the top of the UK commercial property market. These are starting to look like a current (investment) fashion fad and we all know what can happen to fashion fads."

The UK commercial-property market has certainly been in investment boom mode in recent years. In 2006 the market beat all expectations with total returns of almost 20% according to IPD, while in 2005 it had shown total returns of 19.1% (IPD). However as prime commercial property rental yields have shrunk towards 4%, some market analysts are commenting that the UK boom could now be over or even start to reverse as 2007 unfolds. The outlook for interest rates in 2007 will of course play a key role and influence investor confidence levels, if as is being forecast, we experience further increases in UK base rates.