Two of the UK’s biggest institutional fund managers have played down fears of a hard landing for their domestic commercial property market.

Aviva Investors and M&G Real Estate are both bracing for a moderate decline in capital values and rental growth, but they argue the market will most likely avoid a crash.

Aviva Investors, which had already reduced its return forecasts for the year ahead of the UK referendum, said capital values “now look likely to decline moderately over the remainder of the year”.

In a note, Chris Urwin, head of global research at Aviva Investors, said: “It is worth noting, however, that some commentators believe Brexit will hit real estate returns, and the economy, more severely.

“By contrast, we had expected to see a slight increase in capital values over coming months had the UK voted for the status quo.”

M&G Real Estate said in a note that the market ”will deliver more modest returns than the exuberance of recent years”.

It said: “Rents and capital values may come under pressure but that in turn may create attractive opportunities for experienced investors with long horizons.”

Both fund managers highlighted the London City office market as the most vulnerable to Brexit fallout.

“This is largely due to the prevelance of financial services firms and other multinational corporations who may need to relocate some of their operations in order to conduct their business in the EU,” M&G said.

“The likely drop in demand for office space will coincide with a significant supply pipeline that has been building up, which will suppress any potential rental growth.”

But M&G said that if developers postponed some speculative developments – especially those scheduled to be completed in 2018 and 2019 – City offices could benefit from a “softer landing”.

The fund management company, owned by Prudential, said “opportunities may arise to buy into London at a discount”.

It added: “It is also worth noting that large legal firms, predominantly based in the capital’s Midtown, are likely to benefit from the huge amount of legal work that will be required as a result of the renegotiation process.”

Urwin also stressed that “London remains a leading global centre for a broad range of activities, many of which would be relatively unaffected”.

He added: “It continues to benefit from a low corporate tax rate, a diverse talent pool and relatively low regulation.”

Last week, German fund management group Union Investment said London would continue to be a “safe-haven market”.