They think it's all over. It isn't

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About Keeping It Real Estate The lowdown from London on trends and happenings in international property investment. SNL's specialist news team joins the dots in Europe and Asia between public and private property, debt and derivatives, REITs and bricks.

Too much good money chasing too little good stock.

That's the banana-skinned environment in which British REITs are currently seeking out potential acquisitions.

With cash sitting on their balance sheets, earning little interest and dragging on performance, the sector is under pressure to go for growth by expanding their portfolios.

But the potential for gaffes is growing because of the multiple bids some real estate assets on the market are beginning to attract and because of lingering doubts about the long-term outlook for occupier markets.

Data showing Britain's unlisted property pooled funds raised £700 million in the third quarter — the biggest net inflow in two years — will only increase the pent-up buying pressure as this money is put to work.

So the chances of overpaying for an asset are growing as commercial property values begin to recover after a two-year bear market.

Guy Morrell, manager of the HSBC Open Global Property Fund, highlights the dangers in a Nov. 4 statement in which he warns of the potential for the "wrong sort" of recovery.

Morrell cautions investors against taking an overly optimistic view, not least in the listed property sector, which rallied sharply for much of 2009 and anticipated this summer's peak in direct property yields.

"Given the lagged impact of the underlying economy on property occupier decisions, we can expect conditions in the occupier markets to weaken for some time," Morrell said.

Property valuations need to reflect that, otherwise the market will be left vulnerable to further declines, he said.