Pictured above: (l-r)  Tony McGough, global head of forecasting at DTZ Research, David Tonks, head of office agency, Simon Lloyd, head of industrial & logistics, regional chairman Geoff Thomas and valuations director Jeremy Payne (all DTZ).

A rare combination of events means that Birmingham property investors with a long term view can expect better than historical returns, according to research from leading adviser DTZ.

Geoff Thomas, Birmingham-based regional chairman, explained: "For investors with a ten year holding period, prime Birmingham office yields are set to surpass fair value for the first time since 1999, offering an expected return of around 8.5 per cent, the most attractive prospective return since 2001.

"This opportunity has arisen for several reasons. Firstly, there is a historically high purchase yield - 7 per cent at the end of September. This is combined with fast-improving rental growth prospects over the medium term as market rents fall. And, as the market correction eases in the medium term and yields return to more normal levels, investors buying at the current elevated yields stand to benefit from rising capital values. Finally, risk aversion in financial markets has fallen, with the pricing of risk moderating as a result."

DTZ assesses fair value by first looking at the returns an investor could expect over their chosen time horizon such as five, ten or 30 year, and chosen market - office, retail or industrial, given the yield currently available in the market and likely future capital value growth. The modelling then assesses whether this expected return is sufficient to compensate investors for depreciation, transaction costs, the relative illiquidity of property and risk - relative to a risk-free investment, such as Government bonds.

Mr Thomas continued: "DTZ's modelling is more comprehensive that other analysis, which tends to focus merely on the gap between property and bond yields, without explicitly modelling the impact of future rental growth and likely yield shift. 

"The attractive forecast returns present a stark contrast to the pricing available to investors buying before the current correction and reinforce our message of taking a 'back to basics' approach to property investment."