Land Securities, Britain's largest property company, is examining whether to demerge Trillium, its outsourcing business, as one of several possible strategic moves likely to trigger a wave of merger activity within Britain's £50 billion market for real estate investment trusts (REITs).

The Land Securities board, chaired by Paul Myners and led by the chief executive Francis Salway is understood to have hired investment bankers at Citigroup for preliminary advice.

In a statement to the London Stock Exchange this morning, Land Securities said it was "conducting a review of its business structure. The review is well progressed and the company will provide a further update once the review has been completed and any decisions, as appropriate, have been made."

The company is sitting on an offices-to-shops property portfolio last valued at £15.5 billion but its share price has for the past four months traded on average at a 25 per cent discount to its net asset value (NAV) amid fears that prices of commercial property are set to fall.

City analysts and property agents, however, predict that the introduction of UK REITs on 1 January this year will soon lead to consolidation in the market, which may prove to be a far more efficient long-term way for executives to up the share performances of their companies.

Mr Salway said today: "It became evident to us in the run up to and following REIT conversion that we should test our current business structure against alternative options to ensure that we have the optimal structure for creating long term shareholder value."

Land Securities Trillium, the company's property services outsourcing arm with clients ranging from the DVLA to the Department of Work and Pensions, is considered the odd man out in the business operations of a company which traditionally develops and leases offices and shops.

Trillium's nearest rival Mapeley floated on the main market of the stock exchange nearly two years ago.

But City analysts this morning today cooled to the idea of a Trillium spin-off, liking the security of earnings the division provides from having 10 to 25 year outsourcing contracts in place which tend to balance more cyclical profits from the core development business.

Property companies are instead expected to demerge divisions along office, retail and industrial sector lines, only to merge with similar divisions at other property companies to create giant specialist REITs akin to the shake-out which has already occurred in the more establised market for REITs in the US.

One chief executive of a UK property company with a £7 billion portfolio told Times Online: "You can bet investment banks are out talking and pitching plans to executives now. If you were a chief executive would you prefer to lead the change or become the victim of a takeover — the fall in share prices makes many seem vulnerable to a takeover."

Bankers and agents have speculated that British Land and Land Securities could spin off and merge their respective offices and retail portfolios. The companies already have a joint venture in Scotland for shopping centres.

Barely a month ago Laxey Partners, the corporate raider run by Colin Kingsnorth, bought a 1 per cent stake in Land Securities. Laxey is thought to have been adding to its stake this week

Laxey was notorious in 2002 for building up a small stake in British Land, Britain's second largest property company, when its shares were trading at a hefty discount to NAV. Laxey put pressure on the board to sell off assets and called on Sir John Ritblat, then executive chairman, to step down.

Property executives meanwhile feel that the past few months' sell-off in their shares is overdone. Land Securities shares, up 29p today to £18.56, have fallen from a high of £23.40 at the start of this year.

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