Suchergebnisse

Investment returns from property derive from rental income and change in value, and a property's value is a function of the current rent and the expected future rent. So, ultimately, investment returns derive from rent, and successful investment will depend on an understanding of the principles and forces which explain the market's determination of rental value. This paper explains the significance of supply elasticity to the determination of rental value and investigates the probable elasticities of the four main types of investment property. It concludes that, due to the very inelastic supply of farmland and prime High Street shops, trends in rental growth will reflect the profitability of occupation whereas, in general, the rental value of office and industrial property will tend to reflect development costs, due to their relatively elastic supply. The article investigates how far such predictions appear to be supported by evidence and briefly discusses the relative impact of obsolescence on the four property types.

In the 1970s, yields on UK commercial investment property appear to have been influenced principally by the cost of long term capital and the rate of rental growth. Consequently, yields tended to respond to the economic cycle, falling in times of economic recovery and rising when the economy moved into recession. However, in the 1980s so far, yield trends appear anomalous by comparison. Yields failed to rise on the advent of the recession in 1980–81, despite a sharp rise in the cost of capital, yet rose in 1982 just when the economy began to emerge from recession, and have since continued to rise as economic recovery and rental growth have gathered pace. This paper seeks to explain recent movements in investment property yields and to reconcile these with trends in the 1970s. It concludes that the behaviour of yields in the 1980s can be explained by the dominance of institutional investors in the property market, and by their perception of the changing risk attributes of property (compared with alternative investments) which have resulted from changes taking place in the investment markets and the UK economy.

It is conventional to assume that property investments in the UK are priced on the basis that investors require a total return approximately 2 per cent above the current redemption yield on long dated gilts. Some yield premium seems intuitively appropriate due to certain apparent disadvantages of property relative to gilts, eg higher risk, poorer liquidity and greater transfer and management costs. However, the purpose of this paper is to illustrate that such apparent demerits are largely illusory, and to promote the view that investors in growth freeholds need require no yield premium, and indeed may justifiably accept a discount on yields available from long dated gilts valued around par.

This paper investigates the risk incurred in UK property investment by the major investing institutions. The historic variability of investment returns from property is compared with that from long dated British government bonds (gilts) and ordinary shares (equities) using data from the JLW Property Index.1 A variety of definitions of risk are examined in order to assess the relative risk of property, considered both in isolation and as an integral part of the overall institutional portfolio. The investigation concludes that, since the late 1960s, property has involved significantly less risk than either of the two alternative investments.

This paper criticises the 'rational' model of valuation propounded by McIntosh and Sykes in their two papers in the Journal of Valuation. It concludes that, in the case of freehold investments with a standard pattern of income flow, the years' purchase method of valuation (adopting a single capitalisation rate) is likely to be more appropriate, and in the case of short leasehold investments a full discounted cash flow approach is preferable. Only in the case of long reversions or non‐standard short reversions may the 'rational model' prove optimal, but in these cases it seems merely a sensible application of conventional DCF techniques rather than a new valuation method.