BRITISH LAND will send shockwaves through the commercial property sector this week when the FTSE 100 company reveals that more than £1.3 billion has been wiped off the value of its commercial property portfolio.

The company will be the first of the big listed property stocks to lay bare the extent of the turmoil in the sector when it unveils its third-quarter results on Thursday.

Analysts at Deutsche Bank predict the group’s net asset value per share – the benchmark performance indicator for the property sector – will have plunged by more than 16% since the end of September to about 1,400p a share. That will make it one of the steepest drops in living memory.

It would imply a fall of at least 10% in the value of the group’s £13.2 billion property portfolio, according to sector watchers. British Land’s share price has almost halved during the past 12 months, closing on Friday at 988½p.

The company, which was founded in 1856, owns a string of trophy assets, including the Meadowhall regional shopping centre in Sheffield and the Broadgate office complex in the City of London.

The news comes just days after it emerged that the commercial-property market suffered its worst quarterly performance at the end of last year, according to statistics from the Investment Property Databank (IPD). Total returns – the combination of rental income and capital growth – fell by 7.6%, the biggest drop in recorded history.

The collapse in investor confidence has been sharper and faster than ever before, according to Ian Cullen, a founding director of IPD.

Stephen Hester, chief executive of British Land, is expected to say that the gloomy global economic outlook means property values may still have further to fall.

Hester has repeatedly warned during the past two years that property prices were overinflated. Between September 2006 and September 2007 he sold off more than £3 billion of assets.

Small, private investors have been fleeing the sector in droves, forcing many open-ended property funds to freeze redemptions. Many funds, including ones run by Norwich Union and New Star, have already been forced to sell off assets in order to repay nervous investors who want their money back. Falling property values mean that many highly geared property investments are now close to breaking their banking covenants.

Last week the Invista Foundation Property Trust admitted that falling values had left its geared stake in the glitzy Plantation Place office building in the City of London close to breaching its banking agreements.

Invista owns a 28% stake in Plantation Place, which ironically it bought from British Land in a joint venture with the American property group Tishman International for £525m in March 2006.

Property company bosses have being arguing in recent weeks that a short, sharp adjustment to property values would be more positive than a long, drawn-out period of uncertainty.

Opportunity investors are convinced the valuation falls are overdone and are waiting in the wings to snap up bargains.

Nick Leslau, the private property entrepreneur, is poised to buy a £220m portfolio of London offices from Invista Real Estate Investment Management.

It is thought tentative signs are already emerging that the rate of decline in property values has slowed since the turn of the year.

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