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IPD Residential IndexLaunch: 13/04/2010The Strength of Residential as a long termInvestment
Citation preview
IPD Residential Index
Launch: 13/04/2010
Royal Society of Medicine, 1 Wimpole Street , W1G 0AE
The Strength of Residential as a long term
Investment
Apr-10© IPDwww.ipd.com
• Set up in 2001 so 9 years of history
• 6 Sponsors,16 Contributing Organisations
• £3.81bn Residential Assets Under Measurement
• Bespoke portfolio measurement and benchmarking
• IPD Residential Index and Digest publications
IPD UK Residential Service
Background
Apr-10© IPDwww.ipd.com
Residential Overview
Annington Homes
Cadogan Estates
Cordea Savills LLP
The Church Commissioners
The Crown Estate
Dorrington plc
Evenbrook HomesGenInvest
Grainger plc
Grosvenor EstatesGrosvenor Fund Management
Invista Real Estate
Schroder Property Investment Management Ltd
South Kensington Estates
Terrace Hill Group plc
Unite Group
Database Contributors
Apr-10© IPDwww.ipd.com
Sponsors
Residential Overview
Apr-10© IPDwww.ipd.com
2,3692,4062,522
753
1,263
1,413
1,562
1,7621,836
0
500
1000
1500
2000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Residential Investment Market
£2.37bn
£1.44bn
Market Let Properties Other Residential Leases*
`
£3.81bn
Investment value at year end, Investment value at year end, Investment value at year end, Investment value at year end, ££££mmmm
Size of IPD residential databank, end 2009
•These non-market let units are excluded from the IPD residential index but are available for analysis as part of IPD's residential benchmarking service.
Size of residential market let index,2001-2009
7795 PROPERTIES7795 PROPERTIES7795 PROPERTIES7795 PROPERTIES
Apr-10© IPDwww.ipd.com
5.4%
11.8%
15.9% 39.8%
9.7%21.9%
2%
3.4%
8% 20.9%
7.8%57.9%
Regional Weightings
Residential Index investment weightings
Capital value £3.81BN Property count 6000
SW, Midlands & WalesNorthern EnglandScotland
Central LondonInner London
Rest of South East
Residential market
Performance in 2009
Short – Medium – Long term analysis of
Residential vs other Investment classes.
Apr-10© IPDwww.ipd.com
Residential Market let performance
to December 2009
Headline performance numbers, current, medium & long term
11.0
8.1
2.7 3.1
0.1
3.0 3.4 3.2
6.85.9
3.8
10.0
0.0
10.0
2009 3 years 5 years 9 years
Total Return Capital growth Income return
Apr-10© IPDwww.ipd.com
-10.0
-5.0
0.0
5.0
10.0
15.0
Centra
l London
Inner
Lond
onOute
r Lon
d onSou
th E
aster
n
SW, M
idlan
ds & W
ales
North
ern E
nglan
d
Scot la
nd
All Res
iden
tial
Capital Growth
Income Return
Total Return
Regional story through 2009Residential Market let Total return, income & capital
components, 2009 %
%
Apr-10© IPDwww.ipd.com
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Centra
l London
Inner
Lon
donOute
r Lond
onSou
th E
aste
rn
SW, M
idlan
ds &
Wale
sNor
ther
n Eng
land
Scotla
nd
All Res
iden
tial
Capital Growth
Income Return
Total Return
Regional story through 2008
%
Residential Market let Total return, income & capital
components, 2008 %
Apr-10© IPDwww.ipd.com
-7.0
-4.0
-1.0
2.0
5.0
8.0
Centra
l London
Inner
Lond
onOute
r Lon
d onSou
th E
aster
n
SW, M
idlan
ds & W
ales
North
ern E
nglan
d
Scot la
nd
All Res
iden
tial
Capital Growth
Income Return
Total Return
Regional story, Three YearsResidential Market let 3 year annualised Total return,
income & capital components, to December 2009 %
%
Apr-10© IPDwww.ipd.com
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Centra
l London
Inner
Lond
onOute
r Lon
d onSou
th E
aster
n
SW, M
idlan
ds & W
ales
North
ern E
nglan
d
Scot la
nd
All Res
iden
tial
Capital Growth
Income Return
Total Return
Regional story, Five YearsResidential Market let 5 year annualised Total return,
income & capital components, to December 2009 %
%
Apr-10© IPDwww.ipd.com
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Centra
l London
Inner
Lond
onOute
r Lon
d onSou
th E
aster
n
SW, M
idlan
ds & W
ales
North
ern E
nglan
d
Scot la
nd
All Res
iden
tial
Capital Growth
Income Return
Total Return
Regional story, Nine YearsResidential Market let 9 year annualised Total return,
income & capital components, to December 2009 %
%
Apr-10© IPDwww.ipd.com
Discount to vpv and void rate
2008 - 2009 movement for Residential market lets
0.0
10.0
Discount to Vacant possessionvalue
Void rate
2008 2009
Apr-10© IPDwww.ipd.com
2009: Residential vs commercial
Investment Performance by sector, % Total Return p.a.
3.5
4.6
1.0
4.1
11.0
4.8
0.0
10.0
2009
Residential Market letsAll Commercial PropertyRetailOfficeIndustrialOther commercial
Apr-10© IPDwww.ipd.com
-15.0
-5.0
2 yr annualised TR
Residential Market letsAll Commercial PropertyRetailOfficeIndustrialOther commercial
Two years: Residential vs commercial
Investment Performance by sector, % TR pa.
Apr-10© IPDwww.ipd.com
-10.0
0.0
3 yr annualised TR
Residential Market letsAll Commercial PropertyRetailOfficeIndustrialOther commercial
Three years: Residential vs commercial
Investment Performance by sector, % TR pa.
Apr-10© IPDwww.ipd.com
0.0
10.0
5 yr annualised TR
Residential Market letsAll Commercial PropertyRetailOfficeIndustrialOther commercial
Five years: Residential vs commercial
Investment Performance by sector, % TR pa.
Apr-10© IPDwww.ipd.com
100
150
200
250
2000 2003 2006 2009
Residential Market lets All Commercial Retail
Office Industrial Other commercial
Residential in the Noughties:
Double the Long term investment
value of commercial
The residential total return index has experienced growth of 135% To December 2009 (10% annualised), Double the 68% returned to investors in commercial property (5.9% annualised).
Residential has outperformed all the main commercial sectors over the 9 year period.
Commercial property sectors total return index vs Resi Total Return index, 2000 = 100
Source: Scott, IPD, Nationwide
Apr-10© IPDwww.ipd.com
Cash return on December 2000 £100 investment
0 2 4 6 8 10
Residential £235
Standard Retails South East £195
Retail Warehouses £189
Office West End & Mid Town £178
Industrial South Eastern £172
Standard Retails Rest of UK £172
Industrial Rest of UK £168
All Property £166
Office Rest of UK £160
Shopping Centres £152
Office Rest of South East £137
Office City £125
The “Noughties” – Property
winners
A spread of £110 from residential at the top to City offices at bottom in the current value of £100 invested in 2000.
Annual total return 2000-2009, % pa
Source: IPD
Apr-10© IPDwww.ipd.com
Risk reward spectrum
Retail
Off iceIndustrial
M arket Let R esident ial
A l l C ommercial
0.0
2.0
4.0
6.0
8.0
10.0
12.0
10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5
Risk
To
tal
Retu
rnTotal return and risk (standard deviation), 2000-2009
Apr-10© IPDwww.ipd.com
Real investment return: Residential
vs commercial
Real annualised Total return, current, medium & long term
-11.0
-1.0
9.0
2009 3 years 5 years 9 years
Residential Market lets All commercial property
Apr-10© IPDwww.ipd.com
50
100
150
200
2000 2003 2006 2009Residential market let real capital growthCommercial real capital growthResidential market let real total RrturnCommercial property real total return
Residential: Real Long term value
The residential total return index has experienced real growth of 86%To December 2009, compared to 33% in all commercial property. This equates to 7.2% per year in residential against 3.21% per year for commercial.
The real capital growth in the residential index is the same to the total return in the all commercial property index. The residential income return on top of the capital therefore represents a real out-performance “bonus”.
All property real Total return & Capital growth vs Resi real Total Return and capital growth, 2000 = 100
Source: Scott, IPD, Nationwide
Apr-10© IPDwww.ipd.com
45
374
0
50
100
150
200
250
300
350
400
450
500
1960 1970 1980 1990 2000
Commercial property real capital growth Nationwide HPI
Residential: Long term value
Over fifty years real house prices have risen by 274% compared to a -55% fall in real commercial property value.
This represents long run annual residential value increase of inflation plus 3.3% compared to inflation minus 1.2% per year for commercial property.
All Commercial Property real capital value vs Residential value, 1960 = 100
Source: Scott, IPD, Nationwide
Apr-10© IPDwww.ipd.com
Real cash return on December 2000 £100 investment
0 2 4 6 8
Residential £186
Standard Retails South East £160
Retail Warehouses £151
Standard Retails Rest of UK £140
Office West End & Mid Town £139
Industrial South Eastern £136
Industrial Rest of UK £135
All Commercial Property £133
Office Rest of UK £128
Shopping Centres £119
Office Rest of South East £112
Office City £104
The “Noughties” – Real
Property winners
A spread of £82 from residential at the top to City offices at bottom in the current value of £100 invested in 2000.
Real annual Total return 2000-2009, % pa
Source: IPD
Apr-10© IPDwww.ipd.com
50
100
150
200
2000 2003 2006 2009
Residential real total return Commercial property real total return
Equities real Total Return Bonds real Total Return
Residential: Consistent Relative
outperformance
Residential has represented the best real return to a December 2000 investment at every stage throughout the previous 9 years.
Residential real Total Return index versus other asset classes, 2000 = 100
Income analysis
Rental value growth and income return
comparison
Apr-10© IPDwww.ipd.com
Residential Market let income
return
Headline performance numbers, current, medium & long term
0.0
4.0
2009 3 years 5 years 9 years
The net yield has reduced over the past 9 years.
This reflects the large increase in real capital value, particularly in prime central London property and increasing voids in 2009.
Apr-10© IPDwww.ipd.com
Rental value growth consistently higher
in residential
-8
-6
-4
-2
0
2
4
6
8
10
2001
2002
2003
2004
2005
2006
2007
2008
2009
Residential market let rental value growth
All Commercial Property rental value growth
Rental value growth in residential market let property has exceeded that of commercial property in 6 of the past 9 years.
The rental value increase supports the higher capital value growth. The valuations reflect that people are paying for future growth as opposed to current income.
Residential and commercial annual rental value growth
Apr-10© IPDwww.ipd.com
100
105
110
115
120
125
130
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Residential market let rental value growth index
Commercial Property rental value growth index
Residential vs Commercial rental
growth indices 2000 - 2009
The chart plots the growth of nominal rental values in the IPD residential index against the same measure for all commercial property.
The annualised rental growth over the 9 year period was 2.23% for residential compared to just 0.45% for commercial.
Apr-10© IPDwww.ipd.com
80
85
90
95
100
105
110
115
120
125
130
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Resi ML erv growth Commercial erv growthRetail erv growth Office erv growthInd erv growth Other erv growth
Residential top sector for rental
value growth
The chart plots the growth of nominal rental values in the IPD residential index against the same measure for the main commercial sectors.
The annualised rental growth over the 9 year period was 2.23% for residential compared to 1.86% for retail, -1.63% for offices, 0.66% for industrial and 0.78% for other commercial
ERV growth indices for resi & commercial sectors
Apr-10© IPDwww.ipd.com
• 2009 has seen a strong recovery by residential market let property. Prime central London stock has rebounded most quickly with some regions lagging the market.
• Residential market let investment has consistently rewarded investors with greater returns than commercial property and other asset classes since 2000 despite lower income returns.
• The long term real performance of residential represents a hedge against inflation and volatility whilst maintaining impressive performance relative to other sectors.
• The fall from peak to trough is smaller in the residential market cycles.
Conclusions
Apr-10© IPDwww.ipd.com
Thank you
Intellectual Property Rights and use of IPD statist ics as benchmarksWhether in the public domain or otherwise, IPD's statistics are the intellectual property of Investment Property Databank Limited.It is not permissible to use data drawn from this presentation as benchmarks.
© Investment Property Databank Limited (IPD) 2010. Database Right, Investment Property Databank Limited (IPD) 2010. All rights conferred by law of copyright and by virtue of international conventions are reserved by IPD
Mark Weedon
Head of UK Residential Services
Email: Mark.weedon@ipd.com
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