Ashurst and Clifford Chance's (CC's) roles on a A2bn (£1.4bn) real estate deal (see right) would be decent instructions in the property sector in any circumstances, but with the market looking far from rosy, it is a very handy deal for any firm to have in its back pocket.

Even more significantly, despite markets around the world feeling the impact of the credit squeeze, the acquisition was funded with a hefty chunk of debt.

Little wonder then that Ashurst's real estate head, Adrian Dear, singled out the deal at an event last week as a high point for the practice showing that, while the team may not be enjoying the rush of mega-deals it saw in the first half of the year, the sector as a whole is far from dead.

Isolated deals aside though, even the most optimistic concede things are not looking great. The news earlier this month of redundancies in Olswang's real estate group and the spectre of falling houses prices in many Western economies are showing that the halcyon days the sector was enjoying just a few months ago are a thing of the past. Given that one partner admits that "the property industry does love a good crisis", the risk of additional fallout for real estate practices is considerable.

Granted, few are predicting a spate of redundancies, but Olswang is not alone in feeling the pinch. Rumours abound of practices that have been quiet for months and many CVs – from bigger firms as well as small – floating around.

The contrast with just a few months ago is stark given that the sector – and law firms' property practices – had been booming with turnover and deal tallies growing significantly.

Ashurst, for example, acted alongside SJ Berwin and Allen & Overy on the PropInvest and Derek Quinlan acquisition of Citi's London headquarters in July for £1bn and just three months earlier CC and Freshfields Bruckhaus Deringer advised on the £1.1bn sale of the HSBC tower in Canary Wharf.

How spivvy is your client base?

But it is not all doom and gloom in property. Partners argue that development work, planned disposals and acquisitions funded through equity rather than debt are less affected. Likewise, in the southeast at least, property will surely benefit directly from development work from the 2012 Olympic Games, while related infrastructure investment should prop up valuations across the region.

The situation is not so rosy for firms advising the spivvier, debt-financed buccaneers that still populate considerable areas of the real estate world. As one City property head comments: "If you are reliant on clients who are borrowing to buy property then you will not have a lot on, as that has dried up. However, there is still work, and we are not looking at a crash." SJ Berwin's Jon Vivian comments: "It will be patchy for a while but people are still buying and selling, so I am cautiously optimistic."

Indeed, leaving aside Olswang, most are talking about down-scaling recruitment efforts rather than laying people off. Recruitment efforts are also predicted to switch from hunting for enough foot-soldiers to staff the deals to capturing rainmaking partners who can help drive firms through leaner times or using the instability to help pick off strong lateral recruits.

Despite partners talking up the market and joking that at least the situation means they are guaranteed a relaxing run-up to Christmas with minimal risk of having to cancel holidays, it is, however, certain they will not be feeling quite so jovial if things do not pick up in the new year.