Proving what those in the sector have known for years, English Partnerships last week launched an index that shows regenerating can make big returns, says strategy director Trevor Beattie
It makes good business and economic sense to invest in regeneration. Property investment in regeneration areas in England is no more volatile or vulnerable to cycles than investing in property in the wider market. Those of us who live and breathe regeneration have known this for years. However, backing anecdote with hard evidence has not been easy in the past. This has all changed now, thanks to an index of returns on investment that has given us that proof.
The first issue of the annual regeneration index was launched at MIPIM last week by English Partnerships and Morley Fund Management who commissioned it from Investment Property Databank. At the launch, introduced by John Prescott, the deputy prime minister, more than 100 property professionals heard how the index will help track the investment performance of our prime regeneration areas.
The index grew out of research commissioned by English Partnerships two years ago, which started to shatter the myth that regeneration does not pay. It was echoed by similar work done by the ODPM, the RICS Foundation and an academic team led by Professor Alistair Adair of the University of Ulster. These two landmark studies sparked great interest when they were launched at a high profile event in November 2003 at the Tate Britain, and generated calls for an annual index.
A steering group was set up, chaired by Morley’s Phil Clark and including experts from the public and private sectors. The group decided to focus on the total returns in about 30 large-scale regeneration areas in town and city centres across the UK, including the Urban Regeneration Company areas. The first issue of the index contains 559 IPD properties – about 10% of the total property tracked by IPD – and covers the period 1995 to 2003.
The pilot index shows that:
- Urban regeneration areas have outperformed the UK market between 2000 and 2003, with total returns averaging 11% a year over the period in regeneration areas, compared with 9% in the UK market. Office property in regeneration areas has performed much better than the UK market over this period (see graph).
- Over the longer term since 1995, all property returns on standing investment properties in regeneration areas averaged 11.2% a year, similar to the UK average of 11.4% a year.
From the public sector’s perspective, the intention was to encourage institutional investment to take on a more active role in regeneration. Regeneration areas have been falsely perceived to be risky investments, yet the growth potential in these areas is considerable. This was one of the themes of Lord Roger’s urban taskforce, which heard from institutional investors who bemoaned the lack of information on property returns in regeneration areas.
Regeneration outperformed the UK market with returns averaging 11% in 2002 and 2003
Of course the index does not show the full story, so EP is now sponsoring more detailed long-term research by British Property Federation and the Investment Property Forum into the dynamics of property investment in regeneration areas.
As for the index, the team plans to issue it again later this year based on the IPD’s 2004 investment returns data. As properties are purchased in these areas they will be added into the index, and as areas mature and can no longer be described as regeneration they will be omitted.
The IPD Regeneration Index will now be produced annually with the support of private sponsors. You can view the index and find out more at either www.ipdindex.co.uk or www.englishpartnerships.co.uk. Do make use of this major new source of intelligence for regeneration professionals and share with English Partnerships your experience of using it. In this way the index can be fine-tuned to the needs of the industry and used to persuade investors that regeneration is an unmissable investment opportunity.
Trevor Beattie is corporate strategy director at English Partnerships