UK - Investment grade residential real estate in the UK has outperformed commercial property in the country over the past three, five and nine years, and delivered a double digit total return of 11% in 2009, according to International Property Databank (IPD).

The British residential market was the highest returning market in 2009 second only to Sweden's, raising further questions as to why UK institutional investors do not invest in the sector like many of their continental counterparts.

The IPD UK Residential Index showed a combination of 8.1% growth and 2.7% income growth in 2009, the third consecutive year in which the market has outperformed the broader commercial sector.

"Residential market let investment has consistently rewarded investors with greater returns than commercial property and other asset classes since 2000 despite lower income returns," said Mark Weedon, head of UK residential services at IPD.

"Long-term performance represents a hedge against inflation and volatility whilst maintaining impressive performance relative to other sectors."

Weedon told an audience in London that unlike the UK commercial property sector, there was a positive correlation between risk and return.

"Usually, high risk is associated with higher returns and vice versa. But in the residential sector the evidence points to the contrary; residential investment has significantly lower standard deviation (a measure of risk) compared to the commercial market, with higher returns," he said.

It was asked at IPD's residential index launch event in London why more institutional investors did not invest in the sector.

Panellists suggested there were a number of reasons: market scale; supply and demand restrictions; access to product; perceived low income returns; regulatory uncertainty and a lack of market understanding were all considered as hurdles to overcome.

Rob Weaver, head of residential at Invista Real Estate Investment Management, told delegates that the IPD results "confirmed something we all know and cannot now hide away from - residential property has outperformed commercial property over the short, medium and long-term."

He added: "It has had the greatest performance for the lowest risk and you can't get away from that fact."

Ian Fletcher, director of real estate policy at the British Property Federation, said: "These results are very impressive and illustrate why residential is, and should be, on the radar of investing institutions.

"The past shows that residential returns have consistently exceeded commercial property returns with lower risk."

Fletcher added: "The future is a place where demand for housing will continue to exceed supply, providing some assurance that residential will continue to perform well.

"Finding the right property to invest in will remain the sector's biggest challenge, but also presents an opportunity for investment to be channelled into housing through suitable support for the build-to-let model."

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