Regeneration index highlights potential for mixed-use dev funds: IPD

Commercial regeneration property underperformed the UK all-property average in 2010 for the sixth consecutive year, delivering total returns of 13.2%, according to new data released by the Investment Property Databank (IPD).

'We see that strong performance was achieved by the low-yielding high-quality stock within regeneration areas, showing outperformance was possible without exposure to Central London in 2010,' said IPD research manager Greg Mansell.

2011 has seen yield impact lose momentum as a main driver of investment performance, he continued, raising the importance of income returns. 'This plays to the strengths of regeneration areas, which have provided investors with above-average income returns for the last six years,' he added.

Jackie Sadek, Chief Executive of UK Regeneration at IPD, believes there are opportunities ahead for the sector, despite the government funding cuts and the reduction in regeneration institutions. 'It's encouraging to see property establishments making use of the mixed use schemes, and the government has decided to make no distinction between residential and commercial property, which should be encouraging for the mixed REITs,' she said.

Over 10 years regeneration areas have delivered capital growth of 8.8%, over and above the counties in which they are located, at 8.4%. Regeneration areas also enjoy higher yields, currently around 4.3%, compared to the 3.7% in the counties in which they sit.

'There is probably unprecedented land value uplift potential for those who get the combination of social, environmental and economic sustainability right and succeed in making good new places,' said Yolande Barnes, head of research at Savills. 'But the difficulty lies in creating new business and investment models to enable enhanced value to be captured.'

For schemes to progress, innovation will be needed to kick start regeneration projects without the use of public funding to deliver over the longer term. 'It is possible that commercial property development will only be viable in some areas on the back of residential schemes used as the key to unlock funding and investment for mixed and commercial uses,' she added.