According to the chief investment officer of Plurimi Wealth, the UK commercial property sector has become a “toxic environment” for investors. Patrick Armstrong told CNBC’s Pro Talks that the real estate sector is “sensitive” to higher interest rates, which he thinks will lead to lower property values and stock prices. Armstrong also revealed that he is betting against British Land and Land Securities, two of the largest property development and investment firms in the UK, by shorting their shares. The short seller’s profit when the stock falls. They borrow shares to sell immediately with a plan to buy back when the price drops lower to pocket the difference. Armstrong, who oversees a fortune of more than $6 billion, said: “We in the UK are in a recession. Office supply outstrips demand and working from home has eliminated some demand for office space.” “I think UK commercial property is in the most toxic environment you can imagine, which is higher rates, lower property values and no rental growth prospects. .” Shares of British Land and Land Securities have fallen 23.1% and 18.5% respectively this year. By comparison, the FTSE 100 index, of which the two companies are components, rose 4.65% in the same period. Contrary to Armstrong, stock analysts at UBS give both stocks a buy rating. Additionally, the investment bank’s price targets for shares of British Land and Land Securities offer upside potential of 17.6% and 9.2%, respectively. Neither company immediately responded to requests for comment from CNBC. Real estate valuations, especially commercial real estate, move inversely to their yields. Typically, such investments require a premium that is higher than the risk-free return of government bonds. With UK government bonds yielding around 3%, commercial property valuations have fallen to offset the rise in yields on sovereign sows. British Land currently offers a 7.1% yield, one percentage point above the long-term average, according to UBS. The investment banker suggests that for every 0.5 to 1 percentage point increase in yield, value drops by 15-20%. The bearish sentiment is also echoed by economists at Capital Economics. But they expect the drop in value this time to be much less than the decline during the 2007-2009 global financial crisis. Andrew Burrell, chief real estate economist at Capital Economics, said: “We estimate a peak-to-trough decline of 10-15% in both the UK and the euro area over the next year or so. “. . However, Burrell thinks property prices in Europe will be worse as the economic downturn in the continent is relatively worse than in the US. “In Europe, by contrast, the contraction is deeper, with output falling 2% from peak to trough,” said Burrell, referring to the expected drop in GDP. “We also expect monetary easing to take place later in the US, slowing the recovery of economic growth and property values.”