The risks are growing but the U.S. subprime crisis was just what the booming global real estate market needed to avoid a bigger and more damaging bubble further ahead, leading property investors and analysts said on Friday.

In speeches and subsequent panel discussions, the main message from the Reuters Real Estate forum on the 2008 global outlook for commercial property was that the industry needed to keep a cool head as assets repriced because investor interest in the asset class could not be taken for granted.

The subprime crisis is the best thing that could have happened to real estate because risk premiums had fallen too far and rental growth expectations risen too much and that had to end some time, Nick Tyrrell, head of research and strategy at JP Morgan Asset Management said.

It has introduced a new note of realism in the pricing of real estate across the world, he said. We are seeing deals coming across our desks at 15-20 percent below where they were 6 months ago.

He echoed Joe Valente, global head of research at property services firm DTZ (DTZ.L: Quote, Profile, Research), who called the U.S. subprime crisis and subsequent global credit crunch a red herring because it was not the cause of property's growing malaise but rather the catalyst of a cyclical downturn.

A credit squeeze has inevitable adverse consequences for property investment and prices because the market tended to suck up a lot of debt, analysts said.

That probably meant a rise in distressed selling as some property firms struggled to refinance deals, although opinion was split on how much of this was already coming through.

But commercial property had become overpriced in many markets and so was due a correction, not least in the UK where activity has slumped and a repricing of assets was well underway and even beginning to draw the attention of some foreign buyers.

A spokesman for Australia's Queensland Investment Corporation in the audience said it had a war chest ready to invest in UK commercial property, where it saw some fair value emerging and was maybe 2 to 3 percent away on price.

BIGGER BUBBLE

As in the United States, Britain's housing market was in decline and policymakers had responded by cutting interest rates, potentially creating new problems, Valente said.

The bigger risk now is of a bigger bubble in 2008-2010 if interest rates come down too quickly, he said.

In view of the growing risk of a U.S. recession, though, this was not an immediate concern for global investors -- not just global property investors, panelists said.

If the occupier market goes down and debt cannot be repaid then that could open up a whole new can of worms but at the moment it is not much of a problem, Matthew Ryall, director of real estate at BlackRock Investment Management. If the economy goes down then so will real estate, along with other markets.

It was also naive to imagine European or Asian real estate -- the latter hotly tipped in a survey of audience preferences -- could decouple from the United States if the economy sank into recession, panelists said.

Nonetheless, the case for a globally diversified real estate portfolio was more compelling now than it had been for some time, said Timothy Bellman, global head of research and strategy at ING Real Estate Investment Management.

The outlook for property returns is more varied across markets than it has been at any other time in the last five years, he said.

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