GLOBAL – Research and consulting company Real Capital Analytics (RCA) has launched a set of repeat-sales transaction-based commercial property indices for the UK in conjunction with Property Data (PD), replicating the methodology of its US index.

The five RCA/PD UK Commercial Property Price Indices (CPPI) are the UK's first transaction-based indices using repeat-sales regression methodology, RCA said.

Simon Mallinson, RCA's executive managing director for the EMEA region, said: "This new index will allow users to look for leading indicators and understand how sentiment has impacted actual pricing."

Transaction-based indices are better leading indicators than their valuation-based equivalents and give investors more insight into current market sentiment, he said.

This is due to the fact valuations rely on transaction evidence, which takes a while to feed through, he said.

RCA said the RCA/PD UK CPPI is part of an international set of commercial real estate indices that include the Moody's/RCA CPPI in the US, first launched in 2007, and more than 200 US market and regional indices launched recently.

It will produce a transaction-based index for Japan later this year, it said, as agreed with Nikkei Business Publications.

Mark Pickering, director at PD, said: "There has been a growing demand for a UK transaction-based index, driven by the change in investor composition over the last decade."

RCA said the UK index family initially included three national-level indices focused on the office, retail and commercial (combined office, industrial and retail) property types and two office indices focused on Central London and the UK excluding London.

They will use repeat-sales regression methodology, only covering properties that have been sold more than once in the period covered by the index, to show changes in market pricing.

The methodology contains a mechanism to take account of the development of a property over time.
The indices will be published quarterly in the month after each quarter's end.

Peter Hobbs, managing director of research at IPD – which produces valuation-based property indices – welcomed the RCA index launch.

"We do think this is a good thing for the industry and aids the maturing of the asset class," he said.

Investors want better analysis of property as an asset class to help them understand its behaviour and how to manage the risks involved, he said.

"Real estate is not just one behaviour – you can invest in it as a bond-type investment or more as private equity," he said.

"The more metrics we have for describing its behaviour the better."

However, IPD uses transaction data in some of its indices now, having launched a set of transaction-linked indices (TLIs) for the main European markets a year ago.

It has been developing the TLIs over the last few years using a hybrid methodology of transaction information and valuation data.

IPD said it was not proposing TLIs as alternatives to the conventional IPD valuation-based indices (VBIs) because the low liquidity of commercial real estate investment markets would always make valuation-based measures essential for market tracking and performance assessment.

Mallinson also said there was a place for both transaction and valuation-based indices in the real estate investment market.

"Because this is a transaction-based index, which reflects the prices investors are willing to pay, you could see a lot more volatility," he said.

"[The two index types] are both complementary to each other."