LONDON-Commercial property returns have soared 16.5% for 2006 due mainly to strong performance in the office sector, according to new quarterly data from the Investment Property Forum. But leading property advisers and investors are becoming worried about the potential for a market slowdown in 2008, the benchmark data showed.

“Prospects for 2007 are static, but there are more concerns about 2008, particularly relating to yield increase and the impact on capital growth,” says Charles Follows, the forum’s research director, in an accompanying note. Total returns comprise rental income and capital growth. The 16.5% consensus forecast for these in 2006 compare with full-year projections of 13.4% and 11.2% in the IPF’s two previous quarterly reports.

Some property fund managers say they expected further upward revisions to 2006′s consensus number before year-end due to strong near-term momentum. Benchmark data published last week by the Investment Property Databank showed the total return on UK real estate for the first seven months of the year was more than 11% as compared to 19.1% in 2005. Office property in the London City and West End districts showed the strongest projected returns and on average were seen generating annual rental growth of 5.5% and 6.7% over the next five years.

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