become disillusioned with property again, particularly if they relax their lending criteria too far in the current exceptionally competitive lending market. this could also happen if they are seduced by the outlook for the better properties into taking excessive risks on the secondary and tertiary sectors, for which the outlook generally appears rather less bright. we are in favour of healthy competition among lenders but history suggests that the seeds of tomorrow ’ s losses are sown when lenders relax the basics such as loan to value ratios and income cover ; or when they take very bullish views on the likely strength of cashflows. we hear that some lenders are seeking to pressurise valuers into higher valuations. this is not a healthy practise and we hope both the lenders and the valuing profession will be strong enough to resist and will stick to the principles of the new red book. 17 there are undoubtedly differences between 1989 and this stage of the present cycle, perhaps the most notable of which are the comparatively limited scale of speculative development and more realistic expectations. 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. poor investment or loan decisions will not be forgiven by inflation. this environment will alter

an it driven revolution in the next eight years in which the working environment is transformed into a virtual reality? i do not know but i am convinced we ain ’ t seen nothing yet. 21 the fourth factor could make an important difference - greater market liquidity and instruments such as derivatives which will facilitate short - term tactical positiontaking or investment. the enthusiasm and momentum for them is apparent both from what the market tells us and from recent surveys. a clear message from our wide range of property contacts is that greater liquidity is essential if commercial property is to remain attractive as an asset class. there is equally a clear message that successful development of securitisation and derivatives will not on its own be the saviour of commercial property. but without it property will not turn in a performance which can stand comparison with competing assets. we need a mature, liquid cash market in property with a healthy derivative market to permit successful management of risk. these are essential characteristics of efficient markets which are necessary for efficient use of property by users as a factor of production. without such a development there is a risk that the costs of doing business in the uk will be uncompetitively high. i do not know how, or indeed whether, the obstacles to the development of such markets can be easily found. but i regard these issues as nationally important. conclusion 22 so, what is likely to happen in the next eight years? let me sum up my vision. 23 the current strong commitment to keeping inflation in check will create conditions more conducive to rational long - term decisions. commercial property is still to a large extent a longer - term asset and should benefit from this environment. the market will require property investors and owners to recognise and adapt to changing requirements from the users, particularly their increasing wish to manage the risks of property occupation more efficiently. it will require a willingness to work in partnership with tenants and to exploit the benefits of technology to the full. lenders and other property professionals will need to understand and embrace these changes. i know that some of you already recognise this. some of you are not afraid of the pfi. we have recently had the end of history, the end of politics. will the end of distance be next? will “ location, location, location ” be replaced by “ communications, communications, communications ”? 24 this environment offers opportunities which you may - or may not - wish to take. those who take these opportunities will be the survivors and thrivers. i leave you