The UK commercial property market delivered its strongest performance for 11 years in 2004, say the latest figures from the Investment Property Databank (IPD).
According to IDP’s annual results, UK Property Investment Performance in 2004, total property returns (office/retail/industrial) in 2004 were 18.3% compared to 10.9% in 2003.
As a result, commercial property ranked first among the major UK asset classes in 2004, comfortably ahead of both equities and gilts which delivered total returns of 12.8% and 6.6% respectively.
IPD says that property now ranks as the top performing asset class over the last one, three, five and ten years.
The figures also reveal that last year’s rise in interest rates did little to diminish investors’ enthusiasm for property: strong investor demand resulted in a further 66 basis point fall in the all-property equivalent yield over the course of 2004, which boosted capital values by 10%.
The report states: “In contrast to 2003, when the fall in yields was much stronger in the retail sector, yields fell more evenly in 2004.
“This implies that, while investors clearly shield away from offices and industrials in 2003, in 2004 they preferred to increase exposure to property “across the board” rather than taking substantial “bets” on a particular sector.”
Overall, sector performance hierarchy seen in 2003 was maintained in 2004. Retail, with a total return of 20.5% over the year, was the best performing sector, owing to a relatively large fall in yields.
Industrial ranked second with a total return of 16.9% while offices performed least well for the third year running with returns of 15.2%.
However, central London, outer London, and outer South East offices all delivered good returns of between 16%-17%.
Rental value growth at the all property level was, according to IPD, “unspectacular” in 2004, showing a 2.3% increase. But this was an improvement on falls of 1.6% in 2003 and 0.8% in 2002.
Growth was driven largely by the retail sector, where solid consumer spending propelled a 4% increase in rental values in 2004.
The IPD Annual Index is based on a £121bn sample of 11,000 properties.
References: EGi News 01/03/05
