The commercial property market is not about to experience a 1990s style crash, according to the latest research by international property consultants Drivers Jonas.
Despite a dramatic fall in property values in the final quarter of last year, the return of a positive yield gap would help to fuel optimism for the coming 12 months, according to a seminar in Birmingham hosted by valuation partner Edwin Bray and investment partner Jeremy Pearson.
"In January last year there were ten buyers for every seller but this dynamic had reversed to ten sellers for every buyer as commercial property values fell by more than 20 per cent by the end of the year. Nevertheless, the falling prices did not see a slowdown in transactions with the final quarter of 2007 being the busiest ever for Drivers Jonas," he said.
"Any comparison with the 1990s however, doesn't stack up.
"Unlike previous downturns, there is not the chronic oversupply which in turn puts pressure on rental values and in terms of the economy itself, our GDP is much stronger and the cost of borrowing is still significantly less than half of what it was in 1989."
Mr Pearson continued: "This is a capital markets led correction and is driven by sentiment and a readjustment of what an investor's risk return should be. Once there is a feeling that prices fairly reflect the risk premium we then expect investors to come back to the market.
"The current economic climate and the cost of borrowing, however, mean the investor profile is changing and we are already seeing both the savvy high-net worth and a host of opportunity funds coming back into the market and exploiting the opportunities created by the repricing at the end of last year."
Delegates at the annual Drivers Jonas investment seminar at Hotel du Vin in Birmingham heard that the different commercial property sectors were likely to enjoy varying levels of success in the coming year.
The retail sector was seen as the most precarious with low investor activity and falls in consumer confidence and weakening sentiment indicating a challenging 2008, although again there may be buying opportunities for opportunistic buyers.
Last year was a record in terms of take-up, supply and land prices in the industrial sector although there was a sharp fall in transactional volume in the second half of 2007 amid concerns over supply, voids and exit values.
Drivers Jonas believes occupational and developer demand will remain strong in the coming year with attractive yields tempting buyers back into the market.
There is also considerable optimism in the core office market with known requirements of more than 500,000 sq ft and an expectation that growth in prime headline rents will continue to fuel growth in the core secondary market.
Mr Pearson said: "We expect commercial property values to fall further in the first two quarters of this year and as prices soften, property companies and overseas investors will be on the look out for buying opportunities.
"I think we should have some stability by the summer and the opportunity to buy real value in commercial properties for the first time in two or three years."