By Tom Bill
LONDON, Feb 13 (Reuters) - London's property is losing itsattraction for investors as they start to venture out of 'safehavens' and worry that the city's prices look high given aslowing British economy.
A reputation as a safe place to park money during globalmarket turmoil helped drive central London office prices up 52percent between mid-2009 and the end of 2012. Prices in thesmaller luxury residential market grew at a similar pace.
As investors feel calmer about the world in general, theyare looking more closely at London property holdings.
"I cannot help but conclude that London is in bubbleterritory," said Ben Habib, Chief Executive of First PropertyGroup, which owns British and Polish real estate.
"The returns available are very low and capital valuesvulnerable to a shock."
Commercial property deals reached nearly 21 billion pounds($33 billion) last year, according to research group RealCapital Analytics. That was double the amount for Paris and fourtimes Berlin.
Over 64 percent of money coming into the market was fromabroad - up from 61 percent in 2011 and 55 percent in 2010.
But fears of a euro zone breakup, a slew of U.S. tax risesand spending cuts or sharply slowing Chinese growth havediminished - removing factors that had driven the flow of money.
Meanwhile, concerns over Britain itself have grown.
The economy shrank in the last quarter of 2012, Britain'sAAA credit rating looks in danger and the pound is at a 6-monthlow against the dollar - in part because of outflows fromgovernment bonds that had themselves been seen as a safe haven.
A weakening pound "may start the unwinding of the great wallof money," said Jefferies real estate analyst Mike Prew. "Aprime London asset denominated in a secondary currency losesmuch of its investment appeal."
YIELDS UNDER SCRUTINY
Not all agree that London property has run out of steam,citing strong lettings in buildings outside top locations.
"If this is a recession, then not only is London doingrather well but imagine the impact of any economic and financialrecovery," said Investec property analyst Alan Carter.
When the investor focus turns to yield rather thanpreserving capital, sceptics say it is harder to make the casefor London property.
Yields for some Mayfair properties are under 4 percent. Theyare below 3 percent for the Rolex store under the One Hyde Parkluxury flat scheme in Knightsbridge. That compares to a longerterm trend of about 5 percent in the wider West End district.
"We don't believe there is good value in prime centralLondon and are selling to reinvest elsewhere," said RichardGwilliam, head of property research at PRUPIM, a real estateinvestment arm of British insurer Prudential that hasabout 15 billion pounds ($24 billion) under management.
With signs of some half-full or vacant buildings starting todrop rents, that could also hurt values. A succession of jobcuts announced by banks have added to concerns over demand.
The luxury residential market is already in something of ahiatus after rises in sales tax for the priciest homes.
"You have a Sword of Damocles hanging over the market," saidAndrew Langton, founder of high-end estate agent AylesfordInternational. Deals at the top end of the residential sectorhad fallen by two-thirds over the last year, he said.
Those who parked money in London property as a safe havenmay now find it doesn't stack up as well against alternatives.
Benchmark Spanish and Italian 10-year bond yields aretrading above 5 and 4 percent, but without the same perceivedrisk of euro zone breakup that sent them soaring last year.
Property has the disadvantages of being a much less liquidmarket with things like higher transaction fees, buildingmaintenance costs and gaps in rental to worry about.
ESCAPE TO THE COUNTRY
For specialist property investors, London is also lookingpricy compared to the rest of Britain.
Outside London and the Southeast, office values have dropped14 percent since June 2009 , according to property consultantCBRE.
The gap in yield between West End London offices andso-called secondary British offices is about 10 percent versus 1to 2 percent before the crash of 2007.
Property company share prices show London's premium too.
London specialists Derwent London, Great Portland and Shaftesbury trade at premiums to net assetvalue forecasts of about 14 percent, 8 percent and 11 percentrespectively, according to Investec figures.
By contrast, the two largest property firms with real estateoutside London - Land Securities and British Land - trade at about a 6 percent discount and a 5 percentdiscount to their last stated net asset value.
In a sign of the interest outside London, billionaireinvestor George Soros last month built a stake of over 5 percentin Development Securities.
Axa is raising 1 billion pounds to buy propertyacross Britain on long leases, Aviva Investors is alsolooking in British regions and JP Morgan cites betteropportunities away from London's most popular districts.
Beyond Britain, there is also growing interest in some ofthe very regions from which money flowed into London in searchof safety. In cities such as Milan and Madrid, the best shoppingcentres can command yields of as much as 6.75 percent.
"As euro zone break-up risks subside we may look at southernperipheral countries," PRUPIM's Gwilliam said.
