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Uncovering asset level performance – Office and Industrial

by | Jan 18, 2019

Research in real estate, and indeed in many other asset classes, tends to focus overwhelmingly on average performance. But averages mask very differing fortunes of individual assets. This blog, and its partner, sheds light on the variety of asset level performance seen in UK commercial property in 2018.

This article follows on from our first piece looking at asset level performance in the retail sector – for an explanation of our methodology, please begin there.

In the office market in 2018:

  • Across the three sectors there was a similar distribution of asset level performance, particularly between the 10th and 95th
  • On the upside, the top 5% of M25/Outer London assets achieved growth of over 20% in 2018, and the top 1% of assets growth of over 30%.
  • In comparison, 3% of Central London Offices and 1% of Rest of UK Offices reported capital values increasing more than 20% over the year.
  • At the bottom end of the performance spectrum, the bottom 1% of assets saw falls of at least -10% in Central London, -18% in M25/Outer London and -33% in Rest of UK.
  • Thus, while out-performing at the average level, Rest of UK Offices also offered the highest volatility and the largest downside risk of the three office sectors.
  • Average growth for Central London Offices was closer to the 5th percentile than the 95th, while, conversely, in Rest of UK Offices average growth was closer to the 95th This shows a key difference in performance depending on lot size: in Central London larger lot-size assets under-performed and pulled the sector average down, but the opposite was true for Rest of UK Offices where larger lot-sizes outperformed, pulling the sector average up.

In the industrial market in 2018:

  • The Industrial sector as a whole reported capital value growth of 12.4% over the year.
  • However, 5% of the sample saw values fall, likely due to specific tenant events.
  • The bottom 1% of Industrial properties still outperformed 48% of High Street Shops, 56% of Retail Warehouses, and 68% of Shopping Centres.
  • At the more positive end of the spectrum, 12% of Industrial properties reported capital value growth of 20% over the year. The top 1% achieved growth of more than 40% in 2018.

This blog has shown that while our Monthly Index sector averages give a good guide as to how markets are performing on average, they reveal less about the distributions of individual asset level performance. As we have shown, the range of asset-level results can be wide, individual assets can (in large number) buck sector trends, and the weakest performing markets are not necessarily the most volatile at the asset level.

For insight into our retail sample, please follow this link.

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