The number of commercial properties sold at auction slowed in early 2007 reconfirming a slowdown in investment across the broader commercial landscape, says RICS.

A total of 1 038 commercial properties were sold at auction in the first quarter compared to 1 402 in the last quarter of 2006.

Following a 15% rise in commercial transactions during 2006, the latest figures for Q1 2007 show a slowdown in purchasing activity, with sales 26% lower than in Q4 2006.

The success rate for commercial properties sold at auction dropped to 69%, down from 73% in the previous quarter as interest rate rises reduced the outlook for returns.

The slowdown in commercial property market activity comes at a time when investors have favoured equity markets propelling the FTSE to over five-year highs.

RICS senior economist Oliver Gilmartin said:

"The bull market run in commercial property is coming to an end.

"Fewer sales at auction reflects investor caution for commercial property, as yields have fallen below those of more liquid asset classes.

"Equity markets are in vogue, as optimism grows that a recovery in the Euro area and Japan will maintain global economic expansion.

"Investors focusing on equity markets need to remember the lessons learned in the past year as rising interest rates in Japan and US mortgage concerns quickly raised global stock market volatility.

"Reaction to Japanese monetary decisions caused ripples in global investment flows which spilled over into equity markets. 

"With further rate rises in Japan expected for August, defensive asset classes, like commercial property, may still play a part in adding stability to investment portfolios whilst protecting against unexpected inflation scares."

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RICS auction statistics