Regeneration areas hit hardest by property slump

Investors in commercial property in regeneration areas have seen their returns slump compared to the general market, a new survey has found.

The IPD Regeneration Index saw total returns drop by 2.6% more in regeneration areas than the UK average in 2007.

However new regeneration developments outperformed their older counterparts and the UK commercial property average both in 2007 and for much of the last decade. Existing regeneration schemes tended to perform close to the UK average over the last 10 years, the report found.

Rebecca Graham, senior research analyst at IPD, said the it is a good time to invest in regeneration areas as they could be expected to out perform the rest of the market when the property sector recovers.

She said: “In a rising market properties in regeneration areas do outperform and when market turns the opposite is true but there are opportunities for investors in these areas.”

Office and residential developments in regeneration areas clearly outperformed the UK averages for their sectors while retail and industrial property were very similar to them.

Yolande Barnes, director of research at Savills, which wrote the residential chapter of the report, said second-hand rather than new build residential property showed the greatest value uplift.

The value in residential properties is largely untapped by institutional investors and new approaches to regeneration investment, such as shared equity, were needed to capture it, she added.

“It will be management intensive and all the things that have stopped people investing in residential are potentially barriers, but the time is right, especially in this down turn, to look at ways of putting together portfolios of the small scale, neighbourhood stuff and extracting value from that,” she said.

The index covers 659 commercial properties worth 8.13bn and almost 750,000 homes in 37 regeneration areas where private regeneration agencies operate.