This year seems likely to be the year of the real estate fund. As the commercial property boom continues, the latest advertising campaign to hit the billboards is Legal & General Investment's invitation for individuals to invest in their real estate ISA. Above a brightly coloured cityscape of legoland skyscrapers flies the strapline: "We make it easy to invest in a UK property ISA." From just £50 a month or a £500 lump sum, you too can secure your future in real estate.

The Government is also keen to promote investment in real estate. Gordon Brown's Budget last month was accompanied by the Treasury department's paper on real estate investment trusts (REITs). The REIT promises to allow the UK public to invest their savings in managed property funds. Their investment will be poured into a pot of cash which will flow between properties traded within the portfolio without incurring corporation tax – and all from a listed company.

It is a matter of safety in numbers – investors can realistically aspire to invest in a balanced portfolio as even a small sum will be spread across many properties. The attraction is reinforced by the offering of fully tax transparent, quoted vehicles.

These invitations to the private investor follow a definite trend in the listed property sector away from ownership towards management. The financial institutions have long established specialist property management funds. Schroders Property Investment Management, for example, manages a range of pooled property vehicles with assets of £6bn in June 2005. A number of the largest quoted property companies seem set to join them.

Real estate funds and REITs, when they are introduced to the UK in 2007, are collective investment schemes within the definition of section 235 of the Financial Services and Markets Act (FSMA) 2000. Therefore, they are regulated and any person carrying out these activities during the course of business in the UK will require Financial Services Authority (FSA) authorisation. Due to the rising popularity of managed real estate funds as investment vehicles, property transactions increasingly give rise to FSMA-related regulatory and financial issues.

Private investors have also been enthusiastically pursuing the opportunities that are perceived to be available in an expansive property market. The buy-to-let market exemplifies this in the residential sector. Individuals' investment in managed property funds is also increasingly popular. The tax advantages of property ISAs and self-invested personal pensions (SIPPs) have been fully digested and are now beginning to be exploited in the high street. The market is already diverse and yet is still developing as the latest sector is explored and refined: why invest in a general fund when you can choose between product by category, region or, indeed, a single asset vehicle?

Currently, the FSA does not regulate the giving of advice about the acquisition or management of commercial property held in SIPPs.

However, from April 2007, this will no longer be the case and a person carrying out any of the above functions must be authorised. While professional advisers are likely to use available exclusions, this demonstrates the definite transition to more, not less, regulation of financial activities.

These trends in the market have meant that property transactions have become increasingly sophisticated corporate transactions, incorporating joint venture agreements, innovative corporate structuring and careful tax planning. This trend looks set to continue, particularly as increased regulation bites on previously unregulated investment vehicles. As a result, the traditional role of UK law firms within the real estate sector is changing. Not only do law firms have to offer corporate and tax advice as part of a multi-faceted real estate team, they must also be able to advise on the implications of financial services legislation.

Commercial property clients continue to demand accurate and efficient conveyancing from their chosen law firm, but this seems increasingly to be viewed as a commodity service that is taken for granted. The added value is in the structuring solutions that lawyers can offer.

Not surprisingly, law firms have responded to this development in the market and the leaders in real estate have developed specialist 'real estate funds' teams. These departments highlight their expertise in transactional management, tax planning and regulatory compliance. Tried and tested real estate teams are being subdivided into specialist service groups.

Some of these teams specialise in the structuring of property funds, drawing on expertise from their corporate, real estate, corporate finance and tax divisions. 'Property finance' teams have also been established to advise on the financing of funds while 'investment management' groups offer specialist advice in relation to the establishment of real estate funds via limited partnerships and joint ventures between industry giants who are keen to combine their respective expertise in property and fund management. This development is not just limited to the City – established regional firms have also adapted their real estate offerings to capitalise on these developments in the market.

The development of real estate funds is therefore good news for City law firms, which can combine their know-how in corporate finance, tax and regulatory law with their real estate practice to create this capability seamlessly.

However, it is an increasingly worrying development for the niche West End, mid-sized City and regional law firms which specialise in handling commercial property transactions. Without the complimentary regulatory and tax expertise and the know-how required to create tax-transparent structures to suit different types of investors, their clients may increasingly turn to the 'real estate funds' teams in the larger firms across the City and, most recently, the major players in the regions.

This has undoubtedly been the driver for a number of recent mergers of small, niche property firms with larger players, which have the capacity to compete in this market. The smart money is predicting that this process is likely to accelerate over the coming year, emulating the process of consolidation that is so obviously gathering pace among surveying firms.

So, what else does the crystal ball predict for commercial property lawyers in this rapidly changing landscape? The good news is that, for as long as the commercial real estate market remains buoyant, specialists in this sector will be in strong demand in the job market. This is reflected in the choice of employment opportunities, rising salaries and good career prospects.

There are, however, some clear threats – particularly to those firms lacking the capability to jump aboard the real estate funds bandwagon. As clients focus more on the added value structuring, tax and regulatory advice their deals require, pure 'conveyancing' risks becoming devalued and commoditised. In that sort of environment the potential for lawyers to be selected purely on price is all too obvious. The profession will need to be smart to avoid the downward spiral of price deflation that has so badly afflicted residential conveyancing for the past decade.

Simon Hardwick is head of the London real estate team at Halliwells.