US office property sales fell by the largest amount since the September 11 2001 terror attacks in the final three months of last year, raising fears that commercial real estate is heading for a meltdown.

Commercial property in general, and offices in particular, are coming off a boom period, when prices and rents set records last year.

However, far fewer deals have been closed since August, when the credit squeeze essentially shut down the market for commercial mortgage-backed securities and made borrowing more expensive.

The volume of office space sold in the final quarter of 2007 fell 42 per cent to $26.5bn, compared with the same period in 2006, according to data released on Friday by Real Capital Analytics, a real estate data company. Sales of property portfolios fell to $5bn, after logging $105bn in the first three quarters.

"What's happening now is a capital markets event," said Dan Fasulo, managing director at RCA.

Spreads on CMBX, an index that tracks commercial mortgage backed securities, have recently suggested that default rates are expected to reach three times historical levels. But analysts say commercial property is not expected to suffer the same slump as housing because it has not experienced such high levels of overbuilding.

However, if the US economy experiences a deep recession, commercial property is considered to be at risk. Demand for space is largely driven by the health of the business environment.

"The wildcard is whether or not the US falls into a recession. What's causing the market to hold up is the high level of occupancy and high level of rent," said Mr Fasulo. "Unless [there is a recession] you are not going to see a [major] deterioration."

The collapse in property transactions was not limited to office real estate. In retail property, volumes of sales fell by 30.1 per cent to $10.1bn and industrial real estate saw a 22 per cent drop in sales to $26.5bn.

Excluding the $22bn acquisition of Archstone-Smith - the second largest US apartment owner - by Tishman Speyer and Lehman Brothers, sales of retail property were down 60 per cent.

Lower sales were spurred by tighter credit conditions meaning that buyers could raise less cash to pay for property and expected lower prices.

"There was a disconnect between buyers and sellers and that drove sales lower," said Dan Fasulo, managing director at RCA.

The drop in office property sales in the last quarter did not stop the full year 2007 seeing a 55 per cent jump in sales volumes to a record $211bn.

Office property prices in central business areas of cities are 10 per cent lower in the last quarter from their peak levels in the first quarter. RCA expects prices for all types of property to fall another 5 to 10 per cent this year.