Research published by Bahrain-based Islamic investment bank Gulf Finance House said the UK has been a popular destination for Gulf investment funds but a property boom in recent years may have deterred some investors.
Now the downturn makes the market more attractive. 'Until recently, we hadn't considered UK property as an attractive investment area as the prices being paid simply did not make sense to us,' the investment bank said.
The UK has seen a sharp fall in property yields because of overvaluation and the availability of cheap debt. 'UK capital values have dropped by over 15% to date,' said Philip Ingram of Merrill Lynch.
'This correction in UK commercial property provides a buying opportunity for long-term investors. But the market won't stay cheap for long,' added the GFH report.
The report comes at a time when others are looking at the UK commercial sector. Qatar's $40 billion property investment arm Qatari Diar Real Estate Investment Co said it was planning more investments in UK property, after buying London's Chelsea Barracks from Britain's Ministry of Defence in January.
However development activity in the UK commercial sector is at its lowest since March 2003, when Savills and NTC Research, the business research firm, began the Commercial Development Activity Index.
Mat Oakley, head of Savills' commercial research department, said: 'The steady stream of bad news relating to the effects of the credit squeeze on the wider economy is clearly impacting on developers' confidence. Until the debt market eases, and uncertainty about tenant demand relaxes, we expect developers to remain cautious.'
GFH is predicting a general recovery in UK property prices, probably in the next six months.
But Sir John Ritblat, one of the grandees of the UK property sector, has warned that the property investment market would not see any recovery until next year at the earliest.
The former British Land boss claimed that the lack of bank funding and a deterioration in economic conditions would continue to depress the property market 'for at least the remainder of 2008'.
