The latest UK Investment report from Drivers Jonas suggests that prime property values are rising and investors should be looking at the market but warns against expecting a return to 'business-as-usual'.

The report cited that...

• The sharpest falls in values now seem to be behind us. 

• Evidence that prime property values have stabilised and selective sectors are seeing growth. 

• Further value falls will be driven by the weakness of the secondary property market. 

• The hiatus in development activity will drive rental growth in the future. 

• London is awash with international capital seeking opportunities. 

• A significant amount of equity has been raised for new property funds. 

• Investors are chasing limited amounts of good quality stock.

However...

• Rents to keep falling and voids to increase further - casting a shadow over the market into 2010. 

• Lending to remain low. 

• A danger that buyers get carried away with "recovery over-enthusiasm".

The report from Drivers Jonas paints a picture of a market nearing its floor. Market sentiment and investor appetite has significantly improved over the last three months. At the same time the supply of available investment opportunities remains low as liquidity pressure for the institutions and listed property companies has eased. With banks unlikely to simply off load their loan book in a significant way, there is potential for the shortage of investment stock to continue. Accordingly, pricing, particularly at the prime end of the market, has turned and is now rising.

Hence, there are great opportunities available but the report also warns against over-enthusiasm and stresses the need to remember that the outlook remains an uncertain one. In particular they warn of "recovery over-enthusiasm" and the report states that, even with the economy on track to follow the consensus path, its continued weakness over the next 18 months might spook some buyers - those who thought we were back to 'business-as-usual' and may have been considering the less-than-prime stock.

Anthony Duggan, Partner and Head of Research, comments: "We believe that the general yield recovery outside of prime property may come under renewed pressure later this year as the enthusiasm about the recovery and things getting 'less-bad' dies down. Our view is that the economic recovery is dependent on a very delicate balance of the unwinding of the recent financial super-stimulus in the UK and across the globe. This may well be the start of a new growth cycle for property performance but the uncertain economy and weak occupier market will be a shadow over the sector well into 2010.

"However, we believe that professional investors in real estate are now able to pick up good quality assets that should provide a secure and stable platform for solid performance over the next few years. Tangible opportunities exist to buy prime assets providing secure income streams at yield levels not seen for some time."

Howard Richards, Partner and Head of National Investment, said: "Some investors have already been tempted back to the market. They have been buying from funds, trying to manage cash outflows and property companies with debt repayment issues. These shrewd purchasers have been able to buy on their own terms and generate 10-15% returns on equity on good quality secure assets.

"We believe that prime assets with secure income streams have reached a 'fair value' level having reacted so quickly to the economic and financial tornado that has ripped its way through our markets over the last two years. Property has an established position as a key asset class and this is especially the case when investors are looking for a secure income return-driven investment.

Philippa Pickavance, head of Agency for Drivers Jonas in the Midlands added: "Those with the ability to buy now may well look back and reflect on the first six months of 2009 as the time when prime property was cheap and the seeds of the best returns were sown. However, it is by no means too late; the window of opportunity is still open. We do not see this being a fast moving market for some time to come and assets will continue to appear for sale as troubled investors look to sort out, or walk away from, debt and tenant issues."