Institutional investors may be missing out on higher returns by ignoring the potential for investment in regeneration areas because of poor historical performance, according to new research from IPD published today, Friday 10 August.
Commissioned by national regeneration agency, English Partnerships, the IPD Regeneration Index 2007 examines 21 regeneration areas across England. Overall investment in these areas gave higher returns than investment in all other UK Property areas over the past five years, growing at a rate of 16.7% year on year, versus 15.1%.
The trend is replicated across retail, commercial and residential properties and confirms that investment in regeneration areas should no longer be considered a niche market.
English Partnerships Head of Policy and Economics, Steve Carr, said: “These figures confirm unequivocally what we have suspected for a long time – that investors are missing a trick in avoiding regeneration areas because of poor historical performance. And ironically, it is precisely this relatively lower past performance which makes regeneration areas so ripe to deliver great returns in future.
“This research could literally be worth its weight in gold.”
Rebecca Graham, IPD Research Analyst, said “Over the long term, returns were stronger in regeneration areas than the rest of the UK. In the office sector the results tell us that it is possible to achieve higher returns for less risk. Property in regeneration areas should not be disregarded because of its location. The opportunities are there and properties in regeneration areas should be considered for portfolio investments”.
This is the fifth year that the IPD Regeneration Index – created by English Partnerships, IPD, Morley Fund Management and Savills Plc – has been published, allowing analysts to study a five year trend for the first time. Key findings of the Index show:
- In general, there are advantages to investing in regeneration areas over the short to medium-term, with no marked disadvantage in the long-term;
- The level of risk associated with regeneration areas has diminished since 1996, with lower levels of volatility than All UK Property; and
- Regeneration areas are associated with significant capital value growth, in particular for residential property over the short to long-term.
Across the retail sector, warehouses and shopping centres both achieve higher than average annualised returns of 12.8% year on year (y/y) and 16.5% y/y respectively. Over the long-term, total returns on offices outperformed the All UK Office average by at least 150 basis points with less volatility than the UK average. In the residential sector average capital growth has averaged 14.4% y/y as opposed to 13.0% in the counties where these areas are situated.
Steve Carr added: “These figures are great news for the regeneration sector because they indicate that regeneration is working.
“This is important because private sector investment to match the public purse is vital to regeneration schemes. And while English Partnerships is most concerned with the end result – the bright, vibrant, sustainable mixed communities; the new homes, community facilities, shops and offices – I am extremely pleased that we now have hard stats to back up the financial case for the investment these communities need.
“The greater the investment, the greater the success, the greater the return. Regeneration really can now be seen as a win-win mainstream investment.”