UK - Consulting firm Lane, Clark & Peacock is advising its pension fund clients to move back into investing in UK property, following recently improved sentiment towards the UK commercial sector.

However, HSBC Asset Management has warned any improvements in UK property potential must be seen as short-term as officials believe current activity is leading to the "wrong sort" of commercial property market recovery.

Kevin Frisby, investment partner at LCP, said the firm conducted its regular review of property investment as an asset class by speaking to chief economists and strategists at investment houses. Views formed as a result of these conversations suggest the downward cycle has turned in the UK property sector and economists are more optimistic than they were three or even six months ago, said Frisby.

"Property is the one asset class that has not participated in the rally so far. But it has stabilized. When talking to property managers in September there was a perceptible change in activity, and there has been a big uptake in bright periods and transaction activity," said Frisby.

LCP believes commercial property yields have become more attractive as they stand at just under 8% compared with 4% in June 2007, when they were lower than gilts, and think which is why overseas investors have rejoined the market.

Frisby acknowledged investors could still suffer further capital depreciation on investments but argued pensions funds looking to generate income could do well to consider the high starting yields that UK commercial property may have to offer at present.

"There is a downside: capital values could fall, and there is additional volatility. But pension funds are in a nice position and can now stomach some of that volatility. There could be another dip down [in the property market], and we haven't ruled it out for our clients. But the yield is a good caution, so if you start with a 9% yield, you can take capital depreciation," added Frisby.

While LCP has taken a relatively positive line on UK commercial property investment, HSBC has, in contrast, warned that the rapid rise in sentiment is being driven by fundamentals.

The fund manager believes the UK property recovery could therefore be short-lived, especially as the property voids from non-income producing properties increased by 12% in the 12 months to September, and rental values fell by 8.6%.

Guy Morrell, head of HSBC Multimanager and manager of the HSBC Open Global Property Fund, said initial property yields rose from 4.6% to 7.9% between June 2007 and July 2009 and capital values did rise in August for the first time in two years.

However, falling occupier rates or rising voids suggests the activity driving yields up at present is led by capital values of property buyers, rather than investors looking for a long-term return.

"There are some issues about the commercial property market in that we think rental value will continue to fall for some time, as vacancies and voids have risen," said Morrell.

"The UK market has bottomed out and probably the market is reasonably priced now. But what we are flagging is a dramatic turnaround in the sentiment, which - if we are not careful - will lead to a sharper increase in capital values. It is not attractive and could be vulnerable to further falls. So investors need to understand there are some issues out there, particularly in the occupier market," he added.

Both experts said they are both still cautious about improvements in property markets elsewhere, and consider the UK to offer the best short-term potential gains, although Morrell stressed global diversification might serve pension funds well.