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Development Securities has indicated a 拢10.2m pre-tax loss for the 14 months to March this year, turning its modest 拢2.6m profits for 2010 back to the red.

The developer, whose projects include Paddington Central in London (pictured) and The Peninsula in Manchester, said the main factors behind the loss were a charge of 拢4.7m arising from a downturn in the valuation of its 拢237.9m investment portfolio and an impairment provision of 拢2.8m in its small serviced office division.

Chief executive Michael Marx said that while an analysis of the developer鈥檚 acquisitions since 2009 showed a 鈥渃oncentration鈥� in Greater London, the South East and South West of England, the majority of its recent transactions had been outside Central London.

鈥淲hilst large-scale office development in the City and the West End has been an important part of our traditional business model, market conditions have now militated against such development opportunities,鈥� he said.

鈥淔or one thing, the surge of overseas investment into Central London offices has driven values to a point at which it is difficult for us to justify development risk.

鈥淲hilst we have noted the declining vacancy rates in both the City and the West End markets, our concern in the last few years has been that demand may be constrained by lack of GDP growth, the continuing uncertainty that attaches to the current European economy, further redundancies in the financial services sector and improved occupational efficiencies.鈥�

He added that the current economic slowdown had 鈥渟ignificantly impacted鈥� the serviced office sector, where the profitability of the company鈥檚 Executive Communication Centres had been 鈥渟queezed considerably鈥� .

Marx concluded: 鈥淚t is now likely that the real estate sector will find it challenging to demonstrate value gains in a low growth, largely sideways-moving economy, with the ever present threat that, at some stage, interest rates begin to rise thus potentially undermining an element of property value in the near- to medium-term.

鈥淥ur identified strategy of driving capital growth through real estate regeneration is starting to deliver its anticipated returns. We believe that this strategy, reliant as it is on development expertise and a unique access to complex parts of the market, will allow us to navigate these difficult times and emerge with significant value growth for our shareholders.鈥�

Development Securities booked an 拢11.4m pre-tax loss in 2009.

It said a list of positive financial developments had 鈥測et to be captured鈥� by the latest results.