Top-ranked London City offices and West End retail are two of just three hot markets in the UK, according to a new index launched by real estate adviser DTZ on Tuesday. But many UK commercial property markets are over-priced, the adviser warned. In Europe, Paris CBD offices rate as warm, while the Barcelona office market is in the cold zone, the adviser said.

Top-ranked London City offices and West End retail are two of just three hot markets in the UK, according to a new index launched by real estate adviser DTZ on Tuesday. But many UK commercial property markets are over-priced, the adviser warned. In Europe, Paris CBD offices rate as warm, while the Barcelona office market is in the cold zone, the adviser said.

'We have devised the DTZ Fair Value Index to help investors to allocate funds to commercial property, particularly in this highly uncertain market environment,' according to Hans Vrensen, Global Head of Research.

Vrensen claims the Fair Value Index is the first ever forward-looking commercial property value index offering investors insight into the relative attractiveness of current pricing in prime office, retail and industrial property markets across Europe, Asia Pacific and the US. 'The indices take into account macro-economic factors such as the European sovereign debt crisis. The index quantifies the impact of these trends on the attractiveness of individual markets over a five-year investment period - providing investors with our foresight.'

The index offering consists of a suite of 17 different Fair Value Indices that will provide investors with a comprehensive assessment of relative value across the world’s commercial property markets by region and property type. Each index will be updated quarterly on the back of DTZ Research’s property market forecasts. The indices are based on a quantified assessment of whether pricing in 180 individual markets is attractive to investors, and signal to investors which regions and sectors offer the best value.

In the UK, retail and industrial sectors offer investors more attractive returns than offices, the adviser said. Prime retail rents in London West End did not fall during the recession, and firm retailer demand is expected to result in rental growth of around 4% per year from 2010 onwards, providing solid returns to investors. Birmingham, on the other hand, is lagging behind the other cities, and rents are still expected to drop by around 6% this year, before resuming modest growth.