Miller Group - one of the firms behind the huge Arena Central development in the centre of Birmingham - was in cautious mood yesterday, warning that full year profits will be slightly behind last year.

Edinburgh-based Miller is one of the partners which make up Arena Central Developments, a joint venture set up with Bridgehouse Capital, controlled by local entrepreneur Andy Ruhan. Irish firm Dandara is the development partner for the 175-metre high tower, called the V Building.

Arena Central Developments has already negotiated a 250-year ground lease on the 2.3 million sq ft Arena Central site, bordered by Suffolk Street Queensway, Broad Street, Bridge Street and Holiday Street. Construction work is due to begin this spring.

Keith Miller, group chief executive, yesterday said in a trading update ahead of final results that 2007 had been a year of contrast.

"During the first half of the year it was evident that interest rate increases were having an impact on the demand for housing and commercial property," he noted.

"The economy was slowing down in a controlled manner but we had anticipated this and were able to maintain strong forward sales positions.

"The second half was dominated by turbulence in the financial markets and illiquidity in the banking sector which has had an adverse effect on the availability of funds and the confidence of buyers.

"The public focus on these issues has exacerbated the situation and affected consumer and investor confidence. Consequently, the second half of the year has been challenging and full year profits are expected to be slightly behind last year.

"Looking forward, we expect consumer and investor demand to remain subdued in the short term.

"However, the group is in strong financial health and these challenging times will present opportunities, especially for private companies that have greater flexibility to act counter cyclically.

Turning to the group's housing division, Mr Miller said that reservations throughout 2007 had fallen 18 per cent compared to the previous year, with a more pronounced reduction of 29 per cent taking place in the second half.

"Overall prices remain relatively flat although there is no clear pattern, with some regions having a more favourable outturn than others. Margins will be lower as a consequence of reduced volumes," he added.

"We purchased approximately 3,600 plots during the year and sold 900 plots. This will result in a slight reduction in our operating land bank, which will remain at approximately three years supply.

"The strategic landbank position has improved and in particular we anticipate benefiting as a number of our sites in the Midlands and South will come forward for future development in the short to medium term.

"Looking ahead, we have confidence in the fundamentals of the industry with strong demand for home ownership, low unemployment and weak housing supply."

Miller's property division had a very active year, selling some 1.3 million sq ft of space.

"We expect the occupational markets to remain steady both in the UK and Europe and, although prices have been falling in investment markets, the attractiveness and past performance of property as an asset class should see continued demand for good product," Mr Miller said.

Meanwhile, Miller Construction notched turnover in the region of £400 million.