Foreign buyers could be the saving grace of the ailing UK commercial property market, says Jamie Dannhauser at Lombard Street Research.

He notes that commercial property values continued to fall last month - although the pace of decline has clearly slowed. He adds that confidence and activity remain fragile, notably amongst debt-funded buyers who are largely shut out of the market.

But Mr Dannhauser believes that with capital values now 17 per cent below their peak of last year and initial yields at 5.5 per cent, there is unlikely to be much more downside for the market as a whole.

"The work-out in the commercial property sector should not be prolonged. Unlike the early 1990s, the problem is not one of excess supply, at least outside the City of London office market."

He goes on: "There are clear downside risks from tighter credit conditions, banks' reduced willingness to lend and the closure of the commercial mortgage-backed securities market. Debt-funded activity is likely to be much reduced into next year.

"However, with commercial property now looking fair-to-good value versus gilts, and UK institutions awash with cash, there could well be increased equity interest later on in the year.

"Sterling weakness is also likely to be a boon for commercial property prices, as foreign funds plough money into the cheaper UK market."