Property was badly hit by the volatility that swept through world equity markets yesterday, with European property shares having one of their worst days in a decade.

The European Public Real Estate Association index, which tracks the performance of European property shares, saw a drop of 4.16% yesterday, its fourth worst one-day performance in 10 years.

Uncertainty in the US over the extent of losses in the sub prime mortgage market and general uncertainty over the willingness of lenders to provide huge levels of credit to fund buy-outs led to a flight from risk in the market. Investors sought the safety of bonds, with yields on UK gilts falling 7.3%, and sold-off equities in huge amounts.

In an analyst note, Harm Meijer of JP Morgan emphasised the view that investors should underweight property in their equities portfolio.

‘We believe property yields in markets with low or slowing rental growth may come under pressure from higher funding costs, reducing capital growth and total returns,’ he said.