A risk-averse strategy saw Development Securities outperform the market in 2007, and has left it well positioned to move back into the City of London office sector in 2009.

The company, which has focused on neighbourhood shopping schemes anchored by food stores for the past few years, revealed a minimal drop in net asset value from 568p to 564p in its results for 2007.

It also said that it had produced a portfolio return of 3.7% as measured by Investment Property Databank, compared to the IPD Annual Index return of -3.4%.

DevSecs said it had positioned itself well to withstand the downturn.

Overweight in retail

‘We have been significantly overweight in the retail sector but, as our shareholders will be aware, our sub-sector of choice is neighbourhood convenience retailing, typically anchored by a significant food store,’ chairman David Jenkins said.

‘Not only does this sub-asset class offer a resilient pedestrian footfall, but the unenclosed nature of these assets frequently offers significant redevelopment opportunities, as retailers focus on locations which can provide convenience and increased customer trip journeys.’

The company was bearish about the prospects for property in 2008, pointing to the ongoing credit crunch as something that would stifle returns for a long time.

‘There is no doubt that the property market has been impacted by the turmoil in the financial sector,’ Jenkins said. ‘Given the importance to the property market of a confident and healthy banking community, it is likely to be some time before adequate bank liquidity is available again to finance the demand that we feel lies latent in the property business. Consequently, value growth will be inhibited untilstability returns to the financial services sector.’


However, he was confident that the company’s 250,000 sq ft office scheme at Paddington Central, which is 30% pre-let, would not struggle to find tenants because of the supply constraints in the West End market.

In a note, Merrill Lynch said: ‘Current pricing does not look demanding, however, market conditions and Dev Sec’s exposure to office assets at its Paddington development may result in lettings taking longer than anticipated.

‘The risk to some schemes is that projects are delayed, the occupational market slows, costs overrun and development profitability is reduced which would impact the growth rate.

‘This aside the balance sheet is in good shape and the company has a track record in de-risking itself on major schemes.’