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6 November 2007 By George Hay Follow @gfhay

When German commercial property weakened in 2005, withdrawals from investment funds had to be blocked to stop a stampede for the exit. The UK property market is weakening, but funds aren’t likely to need such extreme measures, thanks to more trustworthy valuations.

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The value of UK commercial property fell by 1.9% in October and by 1.6% in September, according to research from the Investment Property Databank (IPD) released last Wednesday. The average total return, rental and capital growth, was 1.8% in the first ten months of 2007, compared to 1819% in the three previous calendar years. The October drop was the biggest monthly fall in capital values since May 1990.

Redemptions of quoted UK real estate funds increased by more than 50% in Q3 to £939m, according to The Association of Real Estate Funds.

Doubts about the value of German property assets caused Munichbased KanAm, a property manager with E10bn under management, to freeze two of its funds for three months in midJanuary 2006 after withdrawal requests of E700m were made in less than 24 hours.

A report published in August by the Investment Property Forum blamed Germany's use of a sustainable longterm value model as opposed to the UK's open market value model as a significant factor for the freezes.

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