Jeremy Payne, Birmingham-based director at DTZ, highlights the relevance of balancing risk, reward and realism.

For many investors in the commercial property sector, the global credit crunch has inevitably created new challenges.

Banks are carefully examining their loan books and reducing risk wherever they can, particularly with new borrowers. But for investors with a proven track record current market conditions may create the potential for even greater rewards.

Transactional activity has been subdued over the first quarter, with institutions and fund managers generally concentrating on management of existing assets, rather than looking to acquire or sell; while some retail funds did sell assets at the beginning of the year in order to meet redemptions, that trend seems to have slowed recently.

Over the first quarter of 2008 the commercial property investment market continued to weaken, albeit that the rate at which capital values fell has been easing month-by-month.

Prices fell by about five per cent over the quarter, with a total reduction of 17 per cent over the past 12 months.

According to Investment Property Data-bank's (IPDs) Monthly Index, the effect of softening prices was felt on the performance of investment property with total returns for property of -3.4 per cent over the three months to the end of March 2008, compared with -8.5 per cent for the previous quarter.

For the other main asset classes, the total returns were -9.9 per cent for equities (FTSE All Share) and 2.6 per cent for gilts (FTSE 5-15 years) over the first quarter.

While falling prices were the greatest influence on the total return figure for property, the income return component actually increased for property as a whole and the three main sectors over the quarter and rental growth remained positive, reflecting that the occupational markets remain comparatively buoyant.

Our view is that in certain sectors the fundamentals are now balancing out and prices probably aren't going to fall very much further, although there is still concern in the retail sector.

Further analysis of IPD's regional figures suggests that West Midlands retail outperformed the national average over the latest quarter (albeit still with a negative total return), while Midlands & Wales offices and Midlands & Wales industrials under-performed the national average.

Property companies generally started the year in quite bullish mood.

However, the credit crunch has curtailed the ability of all but the most well-capitalised companies to make secure finance on terms competitive enough to make acquisitions.

The conundrum for investment funds is whether to hold, sell or buy - and at what price - in order to maintain their investment criteria.

Perversely, they may have to buy more property, even though values are falling, to ensure they retain the pre-set balance of their portfolios.

It is certainly true that because of the lack of transactional evidence, valuations are currently more of an art than a science.

Analysing the market is more crucial to the valuer than analysing the macro economy and those who have experienced bear markets in the past are in a position to advise more appropriately.

Property fundamentals such as the potential for a property if it were to become vacant, its vacant possession value, what refurbishment is required to re-let, what incentives might we have to give, how long could we let it for and the strength tenant's covenant all must be considered in order to give sound advice.

The market cannot stand still. Institutional investors such as pension funds have money coming in that must be invested; they may be holding more cash at the moment, but they will have investment criteria with a tolerance range.

How close they are to being outside their investment criteria will determine their actions.

Some funds are looking at more unusual asset classes within the property sector, including infrastructure as well as looking overseas to developing economies such as India and Brazil.

We are seeing increasing evidence of vulture funds active in the market and the key for those is how long do they wait before they step in and buy.

Do they wait further and let corporates go under or do they believe that the efforts the Government and Bank of England are making to put more liquidity back into the market mean that prices aren't going to fall any further, so they should get in there now and start buying?

Some people say this intervention is not going to make a significant difference to freeing the market because banks will use the money to reduce their exposure - I think it's too early to say. The Government and The Bank of England haven't been very clear on how it is going to make this money work.

It is true that there was a mis-calculation of risk and reward evident before last autumn, starting in America where banks believed there was no risk in lending people money to buy property, and which rolled on to the commercial sector.

But despite difficulties in some financial markets there are opportunities and overseas investors are particularly active, although they are generally concentrating on trophy assets; indeed we understand that much of the interest in 125 Colmore Row, which was bought by EPIC in March for £61.25 million reflecting a net initial yield of 5.73 per cent, came from overseas investors.

The prospects for the commercial property investment market are dependent on the easing of the credit crunch for the finance of new acquisitions and, conversely, the potential for forced sales of highly-geared acquisitions made at the top of the market, the performance of the other asset classes (determining the strategy for the institutions) and general economy (affecting the occupational markets).

Will we learn the lessons of the global credit crunch?

The Bank of England and financial authorities definitely need to find a way to improve transparency but over-regulation could be counter productive and investors will seek their fortunes elsewhere. Meanwhile, they need to be more realistic about their expectations and re-balance their risk and reward strategies.