Shopping centres are set to be the worst-performing sector of the property market in 2008, according to King Sturge. The agent is forecasting mall owners will suffer a total return of -6 per cent in 2008, with a capital value slump of 11 per cent coming on top of a 12 per cent decline in 2007.

The firm estimates prime shopping centre yields had moved out to 4.75 per cent at the year end and, over the next six months, expects them to weaken by at least 0.5 per cent more.

Most of the pain will be felt in the first quarter of 2008, according to King Sturge investment partner Neville Pritchard. "We expect stabilisation after the second quarter of 2008, but overall turnover will be down on both 2006 and 2007," he said.

And retail in general is likely to underperform, the agent forecasts, with retail parks seeing a total return of -5.5 per cent and high street shops -5.0 per cent. Overall retail is expected by King Sturge to produce a total return of -5.5 per cent, against -2.6 per cent for offices and -3.4 per cent for industrial property.

The firm also warned that the continuing slump could leave a number of the industry's major players vulnerable to takeover bids. King Sturge expects "vulture" or "recovery" funds to be waiting in the wings to snap up distressed property companies and REITs, some of which are now trading at massive discounts to their net asset values.

The continuing credit crunch is also likely to impact the development market, with a number of shopping centre schemes postponed as developers fail to secure development finance, the agent forecasts.

However, the picture in the occupational market is brighter, according to head of in-town retail Charles Miller. "This year's winners are likely to include the major grocers, especially Tesco, and key large operators such as John Lewis, Marks & Spencer and River Island," he forecast. "Other well-managed retailers with a compelling product offer, client focused with good operating efficiency and location strategies will likewise weather the market more effectively."

And Miller said continuing consolidation in the department store sector will lead to more new shopping centres adopting the European model of a large food store taking the anchor role, supported by the likes of Next and Zara as secondary anchors. He pointed to ING's St Stephen's scheme in Hull - anchored by Tesco - as a successful example of this approach.

And the UK's biggest property consultant, CBRE, was no less gloomy on the investment front. The firm's monthly index for December 2007 showed that total returns on commercial property as a whole were -3.9 per cent, giving a total return for the whole year of -5.2 per cent.

The retail sector was the worst performer, with an annual return of -6.2 per cent after a -3.5 per cent slump in December. And Michael Brodtman, executive director and head of valuation at CBRE warned of "a rather challenging start to the year with the prospect of further outward yield adjustments compounded by a weaker occupier outlook, which would translate into more negative monthly returns in the near term."

However, he said that the fact that the market was marking down values so aggressively meant that the pain might be relatively short lived: "Considering the remarkably quick adjustment in pricing, with values already down by almost 12 per cent since mid-2007, and with the CBRE Index now showing an all-property equivalent yield of 6.4 per cent against 10-year gilts offering less than 4.5 per cent, it may not be long before more investors see value in the sector."

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