UK long income property continues to out-perform the mainstream market

In the 12 months to September 2018, the CBRE Long Income Index delivered a total return of 10.0%, down marginally from the 10.8% reported in the 12 months to June 2018, but ahead of the total return produced by the “mainstream” commercial property market, as represented by the CBRE UK Monthly Index, of 9.3%. Long Income performance was driven by capital growth of 5.1% over the last 12 months.

The CBRE Long Income Index divides assets into three categories based on the structure of the investment, as this is a far greater determinant of performance than say the underlying nature of the asset. All three types of structure delivered similar returns in the year to September 2018.

  • Sale & Lease Backs reported a total return of 10.0%.
  • Ground Rents reported a total return of 9.6%.
  • Income Strips, the top-performing sector for some time, delivered the highest total return of 10.6%.

The Internal Rate of Return (IRR), the key benchmark by which investors assess opportunities in the long income market has declined over the last twelve months as competition for scarce supply of investment product has been intense. At the whole Index level Long Income IRRs decreased -46bps in the 12 months to September 2018; those on Sale & Lease Backs fells -47bps, with Income Strips moving -43bps and Ground Rents -12bps.

Lee Bruce, Executive Director of Long Income Valuations
Strong investor appetite into the long income sector continues to drive yields down and drive values up across the spectrum of long income investments. Be it the more “traditional” long leased assets, or the emerging income strip and ground rent structures, long income commercial property assets have once again out-performed the mainstream commercial property market in the twelve months to September 2018. With allocations to long income strategies showing no signs of slowing down, we continue to expect the market to remain buoyant well into 2019 – particularly given its historic out-performance in times of economic and political turbulence.
Lee Bruce, Executive Director of Long Income Valuations