London Briefing:As panicked shareholders rushed to dump equities this week amid growing fears of global recession, investors in some of Britain's leading property funds found themselves unable to sell their ailing investments even at a knock-down price.

Several hundred thousand investors in leading institutions, from Scottish Equitable to Scottish Widows, have been locked in to their property funds, once seen as safe-haven investments, where they will now have to wait at least six months or even a year before they can retrieve their money.

The funds have closed their doors on withdrawals after investors, in a panic akin to that being seen on equity markets, stampeded to withdraw their cash amid growing evidence that the commercial property bubble has well and truly burst.

Friends Provident put up the shutters on its £1.2 billion property fund late last month and was followed last week by Scottish Equitable. The 129,000 small investors in Scottish Equitable's £2 billion property fund will now have to wait for up to a year to get their cash back.

Scottish Widows, which is owned by Lloyds TSB, followed suit earlier this week, when its 200,000 policyholders were told that they could not remove their cash from its £2 billion life property and pension property funds for at least six months.

With panic mounting among investors, other leading property funds will almost certainly be forced to close their doors before too much longer.

Britain's commercial property market has been battered by the same forces behind the stock market turmoil - the credit crunch. It has made borrowing more expensive and brought the lucrative combination of easy deals and spiralling prices shuddering to a halt.

With hindsight, it is now possible to see that the peak of the market was reached last May. That was when banking giant HSBC clinched a deal to sell its Canary Wharf tower block to the Spanish property firm Metrovacesa for £1.1 billion; the first time a single building had sold for more than £1 billion.

Now, however, the market is in the grip of its biggest downturn since the recession of the early 1990s. According to figures from Property Investment Databank, returns from commercial property fell by 3.7 per cent in December and, over the past six months, the sector has tumbled by almost 10 per cent.

The office market in the City of London has been particularly hard hit, as financial institutions respond to the downturn by laying off staff and putting any expansion plans on indefinite hold, thus further reducing demand for space. As consumers cut back on spending, the market for retail property investments is also looking less attractive by the day. The funds which have put up the shutters have seen their liquidity levels - so-called "buffer funds" - plunge to such an extent that, in order to meet the demand for cash from investors, they would be forced to sell chunks of their portfolios.

"Buffers" would normally amount to 10 per cent or more of a fund's total assets and would be used to cover withdrawals. But at Scottish Equitable, for example, the rush to withdraw funds saw its "buffer" plunge to £80 million - just 4 per cent of total assets. At Scottish Widows, the "buffer fund" has plummeted from over 10 per cent last autumn to less than 2 per cent.

Selling an office building or retail park is never the quickest of deals to do, even in a bull market, and certainly not during a downturn. Had they not pulled the plug on withdrawals, Scottish Equitable and the other funds would have been forced into a distress sale of their assets.

As besieged property funds close their doors, however, others are looking to cash in. Fund management firm Schroders is reportedly planning a new £1 billion property fund to take advantage of the turmoil in the sector, despite having itself delayed returning cash to institutional investors in one of its other property funds last year.

Calling the bottom of the market is notoriously difficult; even professional investors are generally only able to recognise the low point with the benefit of hindsight.

It will take a brave investor to wade into the market after the carnage of recent days. But for those who believe there are bargains to be had in the bombed-out property sector, buying shares might be a better bet than a property fund.

At least that way, investors would not face the prospect of being locked in for a year if their bet goes belly-up.

Fiona Walsh writes for theGuardian newspaper in London