British Land, Britain's second largest commercial property company, has written down the value of its shops and offices by £1.9 billion as it slumped to a £1.6 billion loss and gave warning of a further decline in property values for the year ahead.

The decline in its holdings - £1.59 billion from its directly owned property and a £354 million decline in its share of joint ventures - drove the group into a pre-tax loss of £1.6 billion compared with profits of £1.2 billion a year ago.

Property disposals and a 10 per cent annual markdown in the value of its assets left British Land sitting on £10.47 billion of property at its March 31 financial year end, down from £13.48 billion the year before.

British Land's heavy exposure to the troubled City offices market - it owns the Broadgate Estate - resulted in its value declines being far more severe than those suffered last week by rival Land Securities, the UK's largest commercial property company, which fell to an £888 million loss after £1.28 billion of write-downs.

Stephen Hester, chief executive of British Land, said, however, that the prospect of financial turbulence spreading to the general economy and therefore its office and retail customers "is now an important risk factor."

The company's large retail property holdings include the Meadowhall shopping centre, valued today at about 1.5 billion, some £160 million less than a year ago. British Land also has a 10.8 per cent per cent stake in Canary Wharf, the Docklands developer, which it was forced to write down by 27.5 per cent to £185 million.

Property prices in 2006-07 shot up to unprecedented levels, owing to the free-flow of cheap debt allowing British Land to make £1.05 billion of gains a year ago, but the onset of the credit crunch has since last summer caused property values to fall faster than those suffered in the last property recession of the early 1990s.

The decline in British Land's property values slowed in its final quarter to March 31, down 2.2 per cent, but Mr Hester warned: "Markets have been known to overshoot in both directions and we do expect a further decline in the current year."

There is growing evidence that City job losses and a slump in consumer demand has already hit rental demand, which in turn is likely to weigh down further on the values of shops and offices this year.

Mr Hester added: "The extent of the feed-through to the 'real' economy and therefore our customers is now an important risk factor. So we have our tin hats on and are busy toiling in the trenches, both to strengthen our defences and to lay the ground work for appropriate offensive when the opportunity arises."

British Land's properties are 99 per cent let and the company is sitting on £2.4 billion of cash and committed but undrawn bank borrowings ready to develop an array of City office schemes and buy from distressed sellers.

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