GLOBAL - A new commercial property index launched in London this week found London City offices to be the world's most attractive commercial real estate market, underpriced by 11.6%.

It was followed by New York offices, underpriced by 5.1%.

Shanghai retail was found to be the least attractive market, overpriced by 17.6%, followed by Barcelona offices, overpriced by 7.9%.

Paris CBD offices and Sydney retail are examples of markets where pricing was considered roughly appropriate.

The results compare the returns an investor could expect from property investment over the five-year period term from the end of the second quarter of 2010 to end Q2 2015, based on local market forecasts, with the risk-adjusted required return for investing in property today based on the five-year government bond yield at the end of Q2 2010.

The index classifies markets into three categories: "hot", where expected returns exceed required returns (property is underpriced); "warm", where expected returns are approximately equal to required returns (property is appropriately priced); and "cold", where expected returns are below required returns (property is over-priced).

Hans Vrensen, global head of research at DTZ, which created the index, said: "London was one of the surprises because it is one of markets where there had been a danger of overheating."

Vrensen stressed that the index was not about historical valuations or price data.

"We will update the index quarterly to reflect changing sentiment in the bond markets so the required, as well as expected, return changes," he said.

The index also aggregates the classifications of the 180 local markets covered to provide an overall view of value, expressed as a score out of 100.

The launch global property index for Q2 stands at 62, which compares with a year earlier, rated with a score of 24.

Tony McGough, global head of forecasting and strategy research at DTZ, said: "A year ago, after the Lehmans crisis, yields were moving out, and rents hadn't repriced - property was not an attractive place to be.

"By contrast, today there are more hot than cold markets around the world."

In addition to the global index, there are 16 region and sector sub-indices.

The numbers show the US and Asia Pacific performing above the global average, with Europe at fair value at 49.

Despite London City offices being the world's most attractive market, overall, the UK is below the average, with more cold markets than hot.

The index also ranks retail as the best-performing sector globally.