UK - 2001 was a strong year of performance for property investments in the UK, but pension funds under-performed in this sector due to their large retail holdings, according to Investment Property Databank (IPD), the London based real estate information group.
Total returns for property funds in the UK last year averaged 7%, which although substantially below the 11.3% achieved in 2000, shows strong performance in light of the economic climate and performance of other asset classes. For example, UK Gilts returned 4.3% and UK equities returned –13.1%.
Property investments held in UK pension funds, however, which account for around 23% of property investments in the databank, returned only 6.2%. Life funds returned 6.9% and unitised funds returned 7.5%.
IPD’s 2002 property funds review believes that overall under-performance from pension funds was principally due to their type of properties held in their portfolios. “Funds were disadvantaged by the lower weighting in London offices and the above-average weighting in the UK shops out of the London.”
In the long-term, however, property investments in UK pension funds have outperformed those in other fund types. Over a 10-year period property investments in pension funds have returned an average 10.6%, compared to 10.2% for life funds and 9.9% for unitised funds.
Pension funds’ holdings consisted of 3,252 properties as at year end with a total capital value of £22.5bn (e35.8bn). The average lot size in the pension funds is £6.9m (e11m).
IPD’s 2002 property funds review analyses the performance of 227 live portfolios with a value of £98bn.