The Investment Property Databank’s (IPD) results of Q4 2007 showed that annual capital values of commercial property have dropped by 8.7%, and the 3-month total return to property investments was -7.6%, which is the biggest quarterly fall in the history of the index and an unprecedented reversal that has dragged the 12-month total return to -4.4%.

All segments delivered negative returns although offices had the best result for the year, with an annual total return of -1.4% and the industrial market had an annual total return of -3.9%. Retail fared the worst with an annual return of -7.1%.

Many expect this year to be worse, with similar losses expected in the first quarter of 2008.

The Financial Services Authority (FSA) warned difficulties in the rental market could mean big losses for banks that have lent on commercial property. Certainly, the £12bn of property derivatives linked to IPD data suggest there will be at least two more years of negative returns. These declines will also feed into the property portfolios of large listed property companies such as British Land and Land Securities.