And notwithstanding my rather jaundiced remarks above about forgotten lessons, some of the risks involved in commercial property are now better understood. This could simply mean that this cycle will repeat history but in a less pronounced way than last time. Perhaps I should at this point recognise the VAT changes announced in the last budget. These have caused a strong reaction from the property industry. They have caused a halt to a number of major deals. I do not know how the matter will be resolved and will not speculate whether the impact will be lasting. More of that no doubt in coming weeks. But are there any other new influences which could bring about a different - and better - outcome than the last cycle? There are at least four other important factors which arguably did not exist in 1989. They may all make the market less volatile in the years ahead. Let me be a bit visionary. 18 The first of these is a low inflationary environment. The political constituency for low inflation is now almost certainly stronger than at any time in living memory. There is a real prospect that a low inflation environment can be sustained into the future. This is a profound change and should help to smooth the path of future economic cycles. This environment is likely to mean slower growth in nominal rents and also less volatile capital values. The emphasis will continue to change from capital gain to running yield.
The pool of such property increases every time that a major user of space moves into new offices and releases its former premises. While some of the better quality secondary property can be refurbished at an economic price and relet, much of this stock may never again be relet for its present use and may not lend itself readily to conversion for alternative uses. This will continue to exert a dampening influence on the market, and imaginative solutions will be needed. The Future 14 So, the market may be improving but it is still not easy. How is the market likely to develop over the next eight years? What will I be saying if you invite me back in the year 2005? 15 As we all know, the property market has, historically, moved in cycles. Some, notably RICS, have done work to develop our understanding of these cycles. The economic cycle itself is clearly one of the driving factors, though it is clear too that property is subject to its own fluctuations and its own step changes. Contributing factors include the strength of tenant demand, the activities of developers and the willingness of lenders to finance investment and development. 16 My story in the future could be similar - perhaps depressingly similar - to my review of the recent past. Many of the ‘ingredients’ that contributed to the last cycle are certainly present now.