The UK residential property investment sector saw a total return of 5.6 per cent in 2016, marking it out as the second best performing sector in the UK.
The sector was found to be the second best investment market in 2016, following behind industrials. This meant that the sector outperformed Standard Retails Rest of UK, Central London Offices and Rest of UK Offices as well as Shopping Centres and Retail Warehouses.
MSCI Inc., a leading provider of investment decision tools worldwide sought information regarding all UK residential assets within the MSCI private real estate database including specialist portfolios as well as residential assets within wider commercial portfolios. The results were recorded by the IPD UK Annual Residential Property Index, which tracks the performance of 11,201 property investments, with a total capital value of GBP 12.1 billion as of December 2016. This marks a significant investment increase on 2015.
On a long term basis, the residential index and residential market lets have delivered the highest total return of the mainstream UK asset classes. These include bonds, equities and listed real estate as well as other property types for the lowest rate of volatility.
Over this 16-year analysis period, yields have slowed somewhat, with a gross yield of 3.8 per cent for 2016. Capital values remained stable during 2016, at 0.1 per cent, whilst the performance of residential market let assets was 2.8 per cent for the year.
Central London assets saw values decline slightly on average in 2016 with a capital decline of 2.8 per cent, whilst rental values fell 1.5 per cent. In other regions, capital growth stood at approximately 4 per cent, aside from the South West, Midlands and Wales, which saw a capital growth of 1 per cent.
Executive Director of MSCI, Mal Hunt, commented: ‘Residential was the second best performing sector of the UK property investment market in 2016, behind industrials but outperforming offices and most areas of the retail market. Within that, UK market let residential returns continued to decelerate but capital returns remained positive outside of central London. Over the longer term, residential continues to dominate the absolute and risk-adjusted performance and rental growth league tables.’