Smaller fund types, notably balanced and pensions funds, suffered in the deteriorating economic conditions of 2011, delegates were told at the IPD Annual Benchmark Launch.
An inability to access central London assets meant funds under £250 million (approx. 299 million) found themselves unable to offset the increasingly negative returns of the worst hit areas of the UK commercial property market.
Speaking at the launch, Phil Tily, IPD Managing Director of UK and Ireland said: "Only a third of funds outperformed the IPD Benchmark return of 8.2% in 2011, as the decoupling between London and the rest of the UK market led to an increasing polarization of returns. That said, those priced out of the capital managed to boost their returns with active management and careful property selection."
Traditional estates and charities were the best performing fund type in the UK for the 7th consecutive year, delivering returns of 14.6%, followed by REITs and prop co's, at 9.8%. The spread between the two increased to almost 5%, as UK funds took advantage of the high pricing in the City to reduce their own exposures.
"Outside of London, as flat or poor performance became the norm, returns across the various sectors of the market converged in 2011, meaning individual asset performance and selection has become an increasingly important component of returns" said Malcolm Hunt, Director of Client Services for the UK and Ireland.
The launch published the performance winners and losers relative to the IPD UK Benchmark total return for 2011. In 2010 the best and worst performing investors were separated by a spread in returns of 17%, whilst 2011 saw the spread reduced to 15%.
Quality of asset and income security
"Income security of assets was a huge component of returns," continued Hunt, "The top quartile of the best performing funds had a considerably higher weighting towards tenants with secure incomes and considerably longer leases (29% long leases against 20% for the weakest performing funds), not to mention a lower vacancy rate (8.1% for the top 25%, 11.3% for the bottom).
"This not only sustained their income streams, but protected values in a market now prone to uncertainty and glitchy sentiment. Our analysis suggests the combined impacts of lease re-gears, new lettings, developments and sales protected values by as much £890 millin in 2011."