Surging office prices could be heading for a tumble

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Aviva Investors and HSBC Global Asset Management both warned of the growing risk that prices get ahead of the underlying strength of demand in the economy. The problem for property investors lies in working out how secure the income stream is from tenants working in a tough business environment.

"There is a significant scope for yields to rally from here," said Aviva head of real estate investment strategy David Skinner. "But clearly if it happens too quickly with no recovery in the underlying income stream, there is a risk that the recovery in capital values that is underway stalls towards the next year and into 2011."

HSBC's Gui Morrell, who manages its Open Global Property Fund, added: "There is a growing risk that a dramatic improvement in sentiment drives up prices to a level that fails to reflect weak occupier markets."