IPD Residential Index Launch: 13/04/2010 The Strength of Residential as a long term Investment

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
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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%
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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