IPD 2009 Residential Index Presentation
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This document summarizes investment performance data from the IPD UK Residential Index. It provides an overview of residential real estate as an investment class compared to commercial real estate over short, medium, and long time periods from 2000 to 2009. Residential real estate significantly outperformed commercial real estate over the 9-year period, with total returns that were double those of commercial property.
IPD 2009 Residential Index Presentation
- 1. IPD Residential Index Launch: 13/04/2010 The Strength of Residential as a long term Investment Royal Society of Medicine, 1 Wimpole Street , W1G 0AE
- 2. IPD UK Residential Service Background • 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 www.ipd.com © IPD Apr-10
- 3. Residential Overview Database Contributors Annington Homes Grosvenor Estates Cadogan Estates Grosvenor Fund Management Cordea Savills LLP Invista Real Estate The Church Commissioners Schroder Property Investment Management Ltd The Crown Estate South Kensington Estates Dorrington plc Terrace Hill Group plc Evenbrook Homes GenInvest Unite Group Grainger plc www.ipd.com © IPD Apr-10
- 4. Residential Overview Sponsors www.ipd.com © IPD Apr-10
- 5. Residential Investment Market Investment value at year end, £m Size of IPD residential databank, end 2009 Size of residential market let index, 2001-2009 Market Let Properties Other Residential Leases* 2,522 2,406 2,369 2000 1,836 1,762 1,562 £1.44bn 1500 1,413 £2.37bn ` 1,263 1000 7795 PROPERTIES 753 500 0 £3.81bn 2001 2002 2003 2004 2005 2006 2007 2008 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. © IPD Apr-10 www.ipd.com
- 6. Regional Weightings Residential Index investment weightings Central London Rest of South East Northern England Inner London SW, Midlands & Wales Scotland Capital value £3.81BN Property count 6000 57.9% 7.8% 21.9% 9.7% 2% 5.4% 3.4% 11.8% 8% 20.9% 15.9% 39.8% www.ipd.com © IPD Apr-10
- 7. Residential market Performance in 2009 Short – Medium – Long term analysis of Residential vs other Investment classes.
- 8. Residential Market let performance to December 2009 Headline performance numbers, current, medium & long term Total Return Capital growth Income return 11.0 10.0 10.0 8.1 6.8 5.9 3.8 3.1 3.4 3.2 2.7 3.0 0.1 0.0 2009 3 years 5 years 9 years www.ipd.com © IPD Apr-10
- 9. Regional story through 2009 Residential Market let Total return, income & capital components, 2009 % Capital Growth % 15.0 Income Return Total Return 10.0 5.0 0.0 -5.0 -10.0 l s n nd n d n n tia e do do do er an al la en st gl W on on n ot id Ea Lo En Sc & lL L s Re h er er ds ra n ut er ut n an t ll So en In th O A l id C or ,M N SW www.ipd.com © IPD Apr-10
- 10. Regional story through 2008 Residential Market let Total return, income & capital components, 2008 % 5.0 % 0.0 -5.0 -10.0 -15.0 Capital Growth -20.0 Income Return Total Return -25.0 l es n nd n n d n ia do do do er an nt al la st W on gl n n de ot Lo Ea Lo En Sc & si L Re h l er er ds ra n ut er ut n an t ll So en In th O A l id C or ,M N SW www.ipd.com © IPD Apr-10
- 11. Regional story, Three Years Residential Market let 3 year annualised Total return, income & capital components, to December 2009 % 8.0 Capital Growth % Income Return 5.0 Total Return 2.0 -1.0 -4.0 -7.0 l s n nd n d n n tia e do do do er an al la n st gl W on on n de ot Ea Lo En Sc & lL si L Re h er er ds ra n ut er ut n an t ll So en In th O A l id C or ,M N SW www.ipd.com © IPD Apr-10
- 12. Regional story, Five Years Residential Market let 5 year annualised Total return, income & capital components, to December 2009 % 10.0 Capital Growth % Income Return 8.0 Total Return 6.0 4.0 2.0 0.0 -2.0 l s n nd n d n n tia e do do do er an al la n st gl W on on n de ot Ea Lo En Sc & lL si L Re h er er ds ra n ut er ut n an t ll So en In th O A l id C or ,M N SW www.ipd.com © IPD Apr-10
- 13. Regional story, Nine Years Residential Market let 9 year annualised Total return, income & capital components, to December 2009 % 16.0 Capital Growth % Income Return 14.0 Total Return 12.0 10.0 8.0 6.0 4.0 2.0 0.0 l s n nd n d n n tia e do do do er an al la n st gl W on on n de ot Ea Lo En Sc & lL si L Re h er er ds ra n ut er ut n an t ll So en In th O A l id C or ,M N SW www.ipd.com © IPD Apr-10
- 14. Discount to vpv and void rate 2008 - 2009 movement for Residential market lets 2008 2009 10.0 0.0 Discount to Vacant possession Void rate value © IPD Apr-10 www.ipd.com
- 15. 2009: Residential vs commercial Investment Performance by sector, % Total Return p.a. Residential Market lets All Commercial Property Retail 11.0 Office Industrial 10.0 Other commercial 4.6 4.8 4.1 3.5 1.0 0.0 2009 www.ipd.com © IPD Apr-10
- 16. Two years: Residential vs commercial Investment Performance by sector, % TR pa. -5.0 Residential Market lets All Commercial Property -15.0 Retail Office Industrial 2 yr annualised TR Other commercial www.ipd.com © IPD Apr-10
- 17. Three years: Residential vs commercial Investment Performance by sector, % TR pa. Residential Market lets All Commercial Property Retail Office Industrial Other commercial 0.0 -10.0 3 yr annualised TR www.ipd.com © IPD Apr-10
- 18. Five years: Residential vs commercial Investment Performance by sector, % TR pa. Residential Market lets 10.0 All Commercial Property Retail Office Industrial Other commercial 0.0 5 yr annualised TR www.ipd.com © IPD Apr-10
- 19. Residential in the Noughties: Double the Long term investment value of commercial Commercial property sectors total return index vs Resi Total Return index, 2000 = 100 250 The residential total return index has experienced growth of 135% To December 2009 (10% 200 annualised), Double the 68% returned to investors in commercial property (5.9% annualised). 150 Residential has outperformed all the main commercial 100 sectors over the 9 2000 2003 2006 2009 year period. Residential Market lets All Commercial Retail Office Industrial Other commercial Source: Scott, IPD, Nationwide www.ipd.com © IPD Apr-10
- 20. The “Noughties” – Property winners Annual total return 2000-2009, % pa Cash return on December 2000 £100 investment Residential £235 A spread of Standard Retails South East £195 £110 from residential at Retail Warehouses £189 the top to City Office West End & Mid Town £178 offices at Industrial South Eastern £172 bottom in the Standard Retails Rest of UK £172 current value Industrial Rest of UK £168 of £100 All Property £166 invested in Office Rest of UK £160 2000. Shopping Centres £152 Office Rest of South East £137 Office City £125 0 2 4 6 8 10 Source: IPD www.ipd.com © IPD Apr-10
- 21. Risk reward spectrum Total return and risk (standard deviation), 2000-2009 12.0 M ar ket Let R esid ent ial 10.0 8.0 Total Return A l l C o mmer cial Ret ail 6.0 Industrial Off ice 4.0 2.0 0.0 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 Risk www.ipd.com © IPD Apr-10
- 22. Real investment return: Residential vs commercial Real annualised Total return, current, medium & long term Residential Market lets All commercial property 9.0 -1.0 -11.0 2009 3 years 5 years 9 years www.ipd.com © IPD Apr-10
- 23. Residential: Real Long term value All property real Total return & Capital growth vs Resi real Total Return and capital growth, 2000 = 100 The residential total return index has experienced real growth of 86%To 200 December 2009, compared to 33% in all commercial property. This equates to 7.2% per year in residential 150 against 3.21% per year for commercial. The real capital growth in the residential index is the 100 same to the total return in the all commercial property index. The residential income return on top of the capital therefore represents 50 a real out-performance 2000 2003 2006 2009 “bonus”. Residential market let real capital growth Commercial real capital growth Residential market let real total Rrturn Commercial property real total return Source: Scott, IPD, Nationwide www.ipd.com © IPD Apr-10
- 24. Residential: Long term value All Commercial Property real capital value vs Residential value, 1960 = 100 500 Over fifty years real house 450 prices have risen by 274% 400 compared to a -55% fall in 374 real commercial property 350 value. 300 250 200 This represents long run 150 annual residential value 100 increase of inflation plus 3.3% compared to inflation 50 45 minus 1.2% per year for 0 commercial property. 1960 1970 1980 1990 2000 Commercial property real capital growth Nationwide HPI Source: Scott, IPD, Nationwide www.ipd.com © IPD Apr-10
- 25. The “Noughties” – Real Property winners Real annual Total return 2000-2009, % pa Real cash return on December 2000 £100 investment Residential £186 A spread of Standard Retails South East £160 £82 from residential at Retail Warehouses £151 the top to City Standard Retails Rest of UK £140 offices at Office West End & Mid Town £139 bottom in the Industrial South Eastern £136 current value Industrial Rest of UK £135 of £100 All Commercial Property £133 invested in Office Rest of UK £128 2000. Shopping Centres £119 Office Rest of South East £112 Office City £104 0 2 4 6 8 Source: IPD www.ipd.com © IPD Apr-10
- 26. Residential: Consistent Relative outperformance Residential real Total Return index versus other asset classes, 2000 = 100 200 Residential has represented the best real return to a 150 December 2000 investment at every stage throughout the previous 9 years. 100 50 2000 2003 2006 2009 Residential real total return Commercial property real total return Equities real Total Return Bonds real Total Return www.ipd.com © IPD Apr-10
- 27. Income analysis Rental value growth and income return comparison
- 28. Residential Market let income return Headline performance numbers, current, medium & long term The net yield has reduced over the 4.0 past 9 years. This reflects the large increase in real capital value, particularly in prime central London property and increasing voids in 0.0 2009. 2009 3 years 5 years 9 years www.ipd.com © IPD Apr-10
- 29. Rental value growth consistently higher in residential Residential and commercial annual rental value growth 10 Rental value 8 growth in residential market let property has 6 exceeded that of 4 commercial property in 6 of the past 9 years. 2 0 The rental value -2 increase supports the -4 higher capital value growth. The valuations -6 reflect that people are -8 paying for future growth as opposed to current 01 02 03 04 05 06 07 08 09 income. 20 20 20 20 20 20 20 20 20 Residential market let rental value growth All Commercial Property rental value growth www.ipd.com © IPD Apr-10
- 30. Residential vs Commercial rental growth indices 2000 - 2009 The chart plots 130 the growth of nominal rental values in the IPD 125 residential index against the same measure for all 120 commercial property. 115 The annualised rental growth over the 9 110 year period was 2.23% for residential compared 105 to just 0.45% for commercial. 100 00 01 02 03 04 05 06 07 08 09 20 20 20 20 20 20 20 20 20 20 Residential market let rental value growth index Commercial Property rental value growth index www.ipd.com © IPD Apr-10
- 31. Residential top sector for rental value growth ERV growth indices for resi & commercial sectors 130 The chart 125 plots the growth of 120 nominal rental values in the IPD residential index 115 against the same measure for the main 110 commercial sectors. 105 100 The annualised rental 95 growth over the 9 year 90 period was 2.23% for residential compared to 85 1.86% for retail, -1.63% 80 for offices, 0.66% for industrial and 0.78% for 00 01 02 03 04 05 06 07 08 09 other commercial 20 20 20 20 20 20 20 20 20 20 Resi ML erv growth Commercial erv growth Retail erv growth Office erv growth Ind erv growth Other erv growth www.ipd.com © IPD Apr-10
- 32. Conclusions • 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. www.ipd.com © IPD Apr-10
- 33. Thank you Mark Weedon Head of UK Residential Services Email: Mark.weedon@ipd.com Intellectual Property Rights and use of IPD statistics as benchmarks Whether 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 www.ipd.com © IPD Apr-10