MIDDLE EAST - Pension fund real estate investors should steer clear of the Middle East property, use debt if you can get it, and wait for a property market turnaround in the UK, according to asset managers.

These were the three lessons of a property investment masterclass expressed on an online TV channel aimed at investors.

Morley fund manager Philip Nell has expressed optimism for a UK property market turnaround in 2008 after what he describes as a "reasonably likely" recession at the end of this year.

"There's a probability the market will turn around mid next year and we'll see vague normality towards end of next year," said Nell.

"We're not seeing the same correction now we've seen in the past three to six months. It's still on the slide but the news is not as bad as it has been."

The turnaround is likely to be sector- and location-specific, according to Nell, and in office the current City supply spike will slide into falling rents until 2010.

Chris Carter-Keall, fund manager at Valad Property Group, claimed undersupply in Reading and Leeds suggests there is investment traction in specific markets.

"Where they do suffer from a significant downturn, it will be where they have  obsolescence or depreciation, which affects office more than other sectors," said Carter-Keall.

Like office , "retail is diverse - it's not a consistent story," continued Nell. "Some markets are doing well, such as central London, which has strong rental growth. Others, such as out-of-town centres, are not: the tap has been turned off with some of those schemes. Institutional investors are buying central retail."

Nell meanwhile believes logistics also "still looks expensive" given its relatively low rental and capital growth, and few supply constraints.

Although neither used the word "hype", the fund managers both said they would avoid Middle East property, despite its current vogue.

More specifically, Nell said Morley would continue to focus on India and the Far East while Carter-Keall described the Middle East property market as "a bonkers risk - beyond high risk".

And commenting on gearing, Carter-Keall defended Valad‘s two hedged debt facilities by adding: "It's still an important factor within commercial property to have a moderate level of debt. We're very comfortable with the loan-to-value ratio, though it's not ideal to be geared when the market's heading south."

Unsurprisingly, both fund managers remain broadly optimistic about property as an asset class.

"Even 10 years ago, smaller pension funds had to invest in property via investment banks. Now there's a broader investor base," said Nell, pointing out active management accounted for 1-2% of yield.

"That's one thing property offers, in contrast to other asset classes," he suggested.