Britain’s runaway commercial property market has peaked and is already showing signs of a slowdown, the head of Britain’s largest property company has warned.

Francis Salway, the chief executive of Land Securities, sounded the alarm yesterday, in a move that will send shivers through the £710 billion commercial property market.

He said that some of the group’s properties were now less valuable than they were last year, after enjoying rising valuations across the group’s £15 billion portfolio for much of the decade.

Mr Salway said that Land Securities has said previously that there were fewer buyers for each property. “Now a small proportion of properties will be worth less than they were six or nine months ago,” he said. “This is a big deal. We have had four years when everything was going up.”

Parts of the retail commercial property sector have already experienced a fall in capital values since the autumn, Mr Salway said.

Despite lifting the value of Land Securities by £1.9 billion over the year to the end of March, Mr Salway said: “The year-end valuation of our investment portfolio showed a slowing in the rate of growth in capital values in the second half of the year. This is consistent with our view that the yield repricing of UK property assets is close to having run its course.”

Although prime shopping centres and smart high streets, particularly in Central London, prospered, retail warehouses for bulky goods, such as DIY items and furniture, had suffered falls, mirroring a trend among cash-strapped shoppers cutting back their spending on high-value items.

Mr Salway’s comments may revive fears that Britain’s banks are overexposed to the UK commercial property market.

Demand for prime Central London office property was strong during the first quarter, with investors paying top prices, confident that rental growth would boost yields, currently hovering at 4 per cent.

Land Securities has prepared for a correction in the UK commercial property market for the past couple of years by avoiding purchases of sub-prime retail and selling mature Central London offices. It has also prelet big new office developments and looked to build revenues from Land Securities Trillium, its property outsourcing arm. Yesterday the group reported revenue profit, a core measure of underlying pretax profit, up from £391.3 million to £392.2 million in the year to the end of March. Net asset value per share soared 44.3 per cent to £23.04.

In the past year the company made a net investment in development of £580 million and made net sales of £350 million from its built investment assets. Land Securities has also made a £1.36 billion net investment in Trillium, boosted by the £910 million purchase of SMIF – the equity stakes in 85 PFI contracts, ranging from GCHQ to the British Embassy in Berlin. It has hired UBS to set up a fund for its PFI business and sell up to 90 per cent of its stake.

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