Pictured above: Edwin Bray of Drivers Jonas

Drivers Jonas hosted its annual investment seminar in Birmingham last week - a prognostic view of what's in store for the investment market in 2010.  Regional Head of Professional Services Edwin Bray, together with National Investment Partner Howard Richards, led an innovative session to 80 investors and lenders alongside the Drivers Jonas Birmingham team and guest speaker Stuart Kelly of the Bank of England.

Key points included:

•         Plenty of money chasing UK property

•         More stock to be available in 2010

•         More banks will be lending - margins to reduce as a result

•         Amortisation and LTV to remain in focus

•         Weak but positive economic growth expected

•         Interest rates to remain flat

•         Threat of increasing bond yields could dampen capital value growth

•         Rental growth to be patchy with focus on key retail centres and Central London offices

•         Key sectors for investment: London offices, prime town centre shops and Cathedral cities, open consent out-of-town retail and London industrial

Where to invest?

DJ emphasised that there is plenty of money chasing UK property from both UK institutions and property companies as well as international investors.  

Richards noted economists are expecting a modest return to positive economic growth and expected interest rates to remain flat.   DJ expected more stock would become available in 2010 from funds rebalancing, banks pushing through sales in the improved market conditions and profit taking by shrewd 2009 buyers.  The public sector will be under pressure to produce capital receipts, and in particular local authority asset backed vehicles will attract interest.

Richards said: "Property has re-established itself as a favoured asset class and there is a significant weight of capital overhanging the market from both UK institutions and property companies trying to buy good property in just about all sectors as well as a range of overseas investors keen on London offices.  This weight of money will see further growth in capital values in the first half of the year. 

"The election may mean some investors will take stock, but attractive running yields and the medium term prospect of rental growth returning in some markets suggests to us a solid year for UK commercial property and the likelihood of total returns of 10% after two difficult years for the sector."

Richards warned the threat of increasing bond yields could dampen capital value growth.  But positively it was felt that more new active lenders will emerge during the year and the increased competition could lead to a 50 basis point margin reduction.

DJ likened the search for rental growth as a maze in the weak economic growth expected, with plenty of pitfalls and dead-ends, but also highlighted that some sectors are poised for growth due to tightening supply and the unprecedented lack of construction activity.

Anthony Duggan, Partner and Head of Research, said: "With economic growth positive but weak and the expectations of only modest growth in consumer spending, the outlook for the occupier markets remains muted.  The key to rental growth in 2010 will be identifying locations with supply constraints."  

Commenting on the investment market in Birmingham, Edwin Bray, Regional Head of Professional Services said:  "We have seen considerably more activity in the prime investment market with some very significant deals in Birmingham such as the recent sale of One Snow Hill and 2 St Philips Place.  Yield compression has helped to push values on prime property beyond many forecasts and the competition between private investors coupled with the return of the Funds has helped to drive up demand.  There are many examples of profit taking over the last year.

"Looking ahead, we believe the appetite for prime stock will be sustained, however the impact of the banks releasing secondary and tertiary properties into the market will probably widen the gap and emphasise the two tier market."