LONDON-Occupier demand for commercial property is undoubtedly softer, reflecting the weaker level of company investment and expansion, and rental inflation turned negative in parts of the market in the final quarter of 2001. That's the conclusion of UK Quarterly Market Beat, Healey & Baker's latest review of the UK market. However, with attractive yields, limited over-supply and a reduction in new development, investor sentiment remains firm.

Andrew Gulliford, deputy senior partner and head of Investment at Healey & Baker said: 'The property market ended last year with considerably better performance than equities or gilts and has now been the best performing sector over three and five years. This continues to fuel the argument in favour of institutions increasing their property allocation. In some quarters however, equities are viewed more positively for recovery potential. Similar arguments were advanced last year and since equities are now cheaper, some appear to believe they must offer yet greater value.

'Property has a less powerful voice in the City than equities or bonds, so a marked increase in allocations is unlikely despite the losses incurred in these other markets. However, the strong demand from the private market has at least been recognized by the institutions, with a number of them planning new products to sell direct to the public–we have seen Scottish Widows steal a march on its competitors in this respect.