New Commercial Property Index Reveals Negative Capital Growth

On 5/27/09 IPD, the global real estate performance analysis and benchmarking specialist, published its first ever annual commercial real estate index and quarterly indicator for the U.S. backed by 10 years of historical data.

According to the IPD U.S. Annual Property Index, capital growth was -12.2% in 2008. For the 12 months to the end of December 2008, all property income return in the U.S. was 5.4%, contributing to an overall total return of -7.4%.

The Annual Index is born out of IPD’s core U.S. Portfolio Analysis Services, which has been measuring the relative performance of individual funds against peer group benchmarks since 2005. The U.S. IPD office has amassed data on $121 billion worth of U.S. commercial real estate portfolios for the first Annual Index, data which is expected to expand substantially in coming years.

The inaugural IPD U.S. Quarterly Indicator, which monitors quarterly movements in U.S. commercial real estate value trends and returns, revealed that capital growth was -10.5% for the quarter ending March 31, 2009. Over the same three month period, all property income return in the country was 1.4%, contributing to an overall total return of -9.2%.

Annual sector and regional returns
For the annual period, the Office sector fared the worst, with capital growth of -12.8%. For the same one year period, the Industrial and Retail sector capital growth was -11.7% and -11.4%, respectively.

At the regional level, Western states posted the largest decline with a capital growth of -13.0% for the 12 months ending with December 2008. Capital growth results were similarly negative for the East, South, and Midwest, at -12.3%, -11.1%, and 11.0%, respectively.

Simon Fairchild, managing director at IPD US, said, “A clear feature of these U.S. results is the apparent synchronization in the downside performance. Whatever manner in which we analyze the data—either across regions or sectors—market values have been written down at broadly the same rate.”

The IPD U.S. Property Index measures returns to direct investment in U.S. commercial property. It shows total return on capital employed in market standing investments (i.e., properties held from one monthly valuation to the next) but excludes any properties bought, sold, under development, or subject to major refurbishment in the course of the month.