IPD 2009 Residential Index Presentation

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


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


Sponsors

Residential Overview


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


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.


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


-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 %

%


-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 %


-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 %

%


-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,


%


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,


%


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


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


-15.0

-5.0

2 yr annualised TR


Two years: Residential vs commercial

Investment Performance by sector, % TR pa.


-10.0

0.0

3 yr annualised TR


Three years: Residential vs commercial



0.0

10.0

5 yr annualised TR


Five years: Residential vs commercial



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


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


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


Real investment return: Residential

vs commercial

Real annualised Total return, current, medium & long term

-11.0

-1.0

9.0


Residential Market lets All commercial property


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



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



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


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


Residential Market let income

return

Headline performance numbers, current, medium & long term

0.0

4.0


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.


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


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.


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


• 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


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: [email protected]

IPD 2009 Residential Index Presentation

Real Estate

Transcript of IPD 2009 Residential Index Presentation