The crisis in the commercial property investment market deepened last night as Friends Provident froze its £1.2 billion flagship fund after a rush for the exit by investors over the past three weeks.

Friends' move affects up to 118,000 individual investors in its 24-year-old property fund, which invests in offices and retail developments in areas as diverse as Glasgow, Leadenhall Street in the City and Camden Wharf in North London.

Britain's fourth-largest insurer, already in the thick of a strategic review, suspended redemptions in the fund for up to the next six months.

Previously investors would have had immediate access to their capital.

Friends said that its move reflected a sharp downturn in commercial property values in the wake of the credit crunch.

It said that if it had carried on letting investors pull their money, it might have been forced into a fire sale of property assets to part-finance withdrawals.

A spokesman said of the rash of redemptions: “It started happening in the very late autumn.”

He said that a cash buffer of about 14 per cent that the fund had operated in July had been reduced to about 5 per cent because of the demand to pull funds.

The spokesman said: “This month we have had about £70 million being paid out. This compares with £77 million for the three months of September to November.

"What we've seen is a decline in confidence in the commercial property market.”

Friends' move comes as the boom in commercial property investments is coming to a sharp end after years of record returns.

According to some estimates, sale values across the UK sector have tumbled by as much 10 per cent in recent months.

With commercial rents also facing a squeeze, investment returns have slumped.

According to Investment Property Databank, the independent researcher, investment returns on commercial property fell by 3.4 per cent to minus 1.8 per cent for the year to date in November, the lowest level since records began.

Analysts at Citigroup calculated yesterday that, on average, the value of FTSE100 property companies has halved this year.

Friends is only the latest firm to act to stop worried investors cashing in their holdings.

It is thought to be the first to prevent customer withdrawals.

New Star Asset Management, which operates a £1.7 billion property fund, marked down the value of its assets by 8.2 per cent last week.

New Star has seen the fund's value fall by 17.8 per cent so far this year.

Norwich Union, which operates the UK's biggest property fund, is known to have consulted the Financial Services Authority about measures that it might take to prevent a rush of withdrawals from its £3.7 billion business.

Invista Real East Investment Management, a UK property investor, said last month that sliding commercial values had cut the value of its assets under management by £600 million.

It said that the outlook for the market was uncertain and predicted that prices will have fallen 10 per cent in the six months since the end of June.

Friends said that it would honour all withdrawals up to midnight on Wednesday.

It said that the fund remained open to new investors and that if it could remove the bar before the end of the six-month period it would do so.

The spokesman declined to confirm whether property in the fund had been put up for sale, but noted that other funds had suffered at the hands of the downturn. “Like others, we have got to plan ahead,” he said.

Friends is being run on a day-to-day basis by Sir Adrian Montague, who became executive chairman after the departure of Philip Moore as chief executive, forced out after the collapse last month of an £8.4 billion agreed merger deal with Resolution, the closed-life fund specialist.

Sir Adrian is planning to update investors about Friends' strategic review by the end of next month.

Friends shares closed 0.1p off at 154.9p.

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