investors in property companies

Results from several big property companies this week either confirmed expectations that property values have slid considerably since the beginning of the year, or added worries about the level of demand for property from occupiers during the economic downturn.

Hammerson was forced to write off £407m from its properties, leading to a pre-tax loss of £417m. Liberty International lost £458m after £639m was wiped off its portfolio.

Given the discounts even to their new net asset values - Liberty International was trading at 832p yesterday compared with its net asset value of £10.95 and Hammerson at 975½p against £13.92 - it is fair to say these losses were expected. In fact, the market is pricing in much worse to come, showing it does not believe stated Navs. There will be further billions of pounds written off property portfolios in the next few weeks with results due from British Land, Mapeley, Segro and Brixton.

Morgan Stanley's Martin Allen said in a note last month that property shares would only bottom out when NAVs also troughed. Shares could track values down further without any positive news, although there is protection from additional declines by NAV discounts, at an average of 28 per cent for large cap stocks and 25 per cent across the sector.

However, barring any isolated merger activity, there seems little prospect of a sustained rebound. Indeed, Liberty introduced new doubt this week after warning that like-for-like rental income had fallen owing to charges from tenants in administration. JPMorgan, which had expected income to be positive, described it as the "end of the resilience myth". The news shocked the real estate sector, down 5 per cent since Wednesday.

The saving grace for investors in property companies during the slump in property values has been that rental income has generally increased. Now, however, with the economy under pressure, it is possible to see reductions in rents for property companies, exposed as many are to the London offices and retail markets. Outside this, there are concerns about dividends from companies that need to shore up their cash positions. Quintain this week froze its dividend for two years, the first big property developer to do so. The danger is less acute for real estate investment trusts, however, which have to distribute the majority of income to shareholders.