With the dust of the toppled World Trade Centre still settling and financial markets reeling, equities in the US sustained their biggest one-week fall since 1933. European markets followed, suffering swinging losses.

With Europe apparently more susceptible to ructions in the US economy than had been forecast at the start of the year, it might be helpful to consider the outlook for what has been one of the best European performers - office properties.

Even before the terrible events of September 11th, few doubted that the strong growth rates in rents and values in most European office markets were already slowing down.

According to the "Property Clock" compiled by consultants Jones Lang LaSalle, as of the end of June, only three European cities - Milan, Lyons and Moscow - were in a phase where rents were rising.

A further 10 - including London, Paris, Berlin and Madrid - were seeing rental growth slow, while a further five had rents falling.

With economists predicting a US recession, is it possible that property is a safe haven? Peter MacFarlane, head of the international investment division at consultants Weatherall Green & Smith, says that, so far, the slowing economy and the destruction of the World Trade Centre have had little discernable impact. "Things have been pretty flat from an institutional investor point of view," he says, adding that wealthy individuals remain buyers of property.

The latest cuts in interest rates, if anything, he says, will boost demand from property investors.

But Gerald Blundell, head of European investment strategy at Jones Lang LaSalle, says it is impossible to imagine that property values will not suffer. "Something like the World Trade Centre makes us all in the same market," he says. It is impossible to believe Europe will escape the shocks of the attack on the biggest symbol of western capitalism.

While efficient markets theory suggests property offers low co-variance with other asset classes - meaning it rises and falls irrespective of how other asset types perform - that theory has limits, he says.

"Efficient markets theory is like an umbrella that only opens up when the sun is shining," he says. "And co-variance is always so much lower when markets are falling than when they are rising." Property markets have not yet begun to really reflect the latest shocks because of what Mr Blundell calls "the Mickey Mouse effect" - in Disney cartoons, Mickey walks off a cliff but hovers in mid-air for several frames before he finally plummets.

"Rental growth in Europe for the next year will be darned near zero," Mr Blundell predicts.

The attack on the World Trade Centre and the US military build-up in the Gulf has affected a market that many had forecast faced a temporary slowdown rather than a fall. According to Michael Haddock, associate director of research and consulting at CB Hillier Parker, the European office boom of 2000 was largely driven by demand from high technology, media and telecommunications (TMT) companies. The retrenchment by those occupiers would have led to a slowdown in any event.

In most cities, the firm's research shows, take-up by tenants in the first half of 2001 was down by anything from 25 per cent to 50 per cent of levels seen in the second half of 2000. Moreover, rental growth, which had been running at about 6 per cent per quarter, slowed significantly to 0.4 per cent in the second quarter. Even in early September, CB Hillier Parker was forecasting rents would be flat or would fall slightly in the third quarter.

Mr Haddock cites several factors which, even before the world appeared to have been turned upside-down, weighed on European offices. Among these are the relatively high proportion of tenant demand accounted for by TMT companies. Research from Jones Lang LaSalle shows these companies accounting for 18 per cent to 28 per cent of office transactions in Europe in the past two years - replacing finance, insurance and banking as the dominant sector.

It is this space, he says, that is in danger of being dumped on the market by tenants who no longer need it - either their growth has slowed or they are bankrupt - and which will drag both rents and property values.

Indeed, recent data from the US suggest property markets face risks from a source that most forecasters had not considered - tenants themselves. While speculative development has not been a characteristic of office markets on either side of the Atlantic, an activity that might be termed speculative leasing clearly has.

According to data from Boston-based Torto/Wheaton Research, 2001 has seen the first back-to-back quarters of negative net absorption in the US office markets with about 30m sq ft of space being offered to let.

Analysts at California-based Green Street Advisors, in a recent research note, say that retrenchment by formerly fast-growing companies is to blame.

The analysts ask: "What plague has infected the office markets to cause two consecutive quarters of record-breaking poor results?" They say: "The most important factor has been an avalanche of sub-lease space."

While tech-dependent markets are hardest hit, areas attracting low-tech tenants have not been immune, they say.

Mr Blundell points out that, even in a recession-hit economy, property remains a better bet than, say, equities. "I think of dividends as the top storey of the skyscraper and they are the first thing to go," he says. "Real estate is in the basement. Rent is the last thing that doesn't get paid." But property can only demonstrate its resilience for so long. European offices, therefore, are likely to be a buyer's market for the year ahead.