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Market snapshot
The residential sector (% changes)
听Income returnCapital growthAverage total returns
19746.04.910.9
19756.610.917.5
19767.29.016.2
19777.68.015.6
19786.830.136.9
19795.932.138.0
19806.57.514.0
19817.51.48.9
19827.87.915.7
19837.412.820.2
19846.914.621.5
19856.89.516.3
19866.612.519.1
19876.412.819.2
19885.530.636.1
19895.67.813.4
19906.8鈥11.4鈥4.6
19917.6鈥2.65.0
19928.1鈥7.01.1
19938.11.89.9
19948.22.310.5
19958.6鈥2.56.1
19968.49.017.4
19977.913.020.9
19987.67.815.4
19997.113.420.5
20006.810.016.8
20016.814.221.0
20025.626.732.3
20035.116.221.3
20044.515.520.0
Residential
As Andrew Hume, director in strategic consulting at agent Jones Lang LaSalle, says: 鈥淩esidential has been the key driver in mixed-use regeneration schemes.鈥 He and the property developers he advises feel that, despite the current decline in residential returns, housing will continue in this role. The primary reason for this is that the sites that are being brought forward 鈥 particularly the larger ones in the money-spinning areas of the South-east 鈥 are usually designated for housing. Developers such as Land Securities point to the fact that the bulk of these large sites in the four housing growth areas will require substantial office and retail components in order to ensure people want to live in them. There will also be leisure and industrial elements but these are likely to be much less substantial. The recent decline in returns from a high of 32.3% in 2002 is likely to continue, but the 20% return in 2004 is still comfortably ahead of the 18.3% return for all property.
Market snapshot
Retail and office returns (%)
听RetailOffice
19717.9 19.2
197220.4 33.3
197323.9 30.7
1974鈥14.2 鈥18.5
197518.4 8.0
197613.6 7.1
197729.5 23.3
197831.3 22.6
197925.0 20.3
198019.4 16.9
198117.3 15.0
198210.4 6.7
198312.3 5.5
198413.8 6.9
198512.7 7.7
198611.7 12.1
198720.8 30.7
198824.8 31.1
19899.9 16.5
1990鈥8.2 鈥9.9
19913.4 鈥10.8
19923.6 鈥7.2
199320.7 19.3
199412.9 10.7
19954.1 3.0
199611.8 7.5
199718.5 14.5
199811.6 11.6
199913.9 14.3
20006.7 15.4
20015.6 7.7
200214.0 3.3
200315.5 3.2
200420.5 15.2
The office sector
An interesting subplot in some of the bigger regeneration schemes is which type of firms will bring them forward. To date it has principally been the larger housebuilders such as Barratt, Wimpey and Bellway. However, these housing giants have recently gone cold on regeneration 鈥 perhaps because although they are building more homes the sale time is longer. Developers that have traditionally stuck to office development have begun to warm to residential and have increasingly become active in this market over recent years. A glance at the returns on offer shows why. The average return from office space last year was 15.2%, compared with 20% for residential. As investors and developers increasingly seek to diversify their portfolios in order to find returns that outperform the market average, this trend is likely to continue.
The retail sector
The future of mixed-use regeneration schemes is securing the main end commercial user as early as possible 鈥 right now this is retail and the big supermarkets like Sainsbury鈥檚 and Tesco,鈥 says Tim Holden, deputy chief executive at housing association Network Housing Group. The figures bear Holden out. Retail has consistently outperformed the average return for all property over the past three years 鈥 20.5% compared with 18.3% in 2004. Holden feels that the traditionally strong office sector will rebound and come to drive regeneration schemes much more in the next few years. However, office returns have been poor in recent years, particularly in the South-east, although nationally they grew from 3.2% in 2003 to 15.2% the following year. Regardless of whether office space takes on an increasingly important role in regeneration, supermarkets have come to realise the value of being part of a mixed-use development in town centres with accommodation above. Although Tesco denies that this is a specific part of its long-term strategy, it continues to open stores in prime locations such as south Clapham in London with a significant number of homes on top of the store.