With the further expansion of Investment Property Databank (IPD) into continental Europe, one of the obstacles to investment in commercial property is rapidly being removed. IPD is the organisation that, in the UK, collects and analyses performance data from the property holdings of the major investors, notably the insurance companies and pension funds. The property performance indexes derived from this data are the most widely accepted yardstick for the UK commercial property market.
Property yardsticks are thus no problem in the UK, but the lack of them has long hindered fund managers in other European countries. If a pension fund decides to invest in property, how can it measure its success or failure unless it has some benchmark against which to test its own performance?
Initially IPD extended its successful UK formula to the Netherlands and Ireland, where indexes for the local property market are now well established. This year should see a further extension of IPD's activities to Germany, Sweden and - outside Europe - to South Africa. Feasibility studies in co-operation with local partners have been completed in all three countries and the operation is now moving into the implementation stage with the prospect of initial results later this year.
In co-operation with the European Business School in Frankfurt and a dozen or so major German property investors - open-ended funds and insurance companies - IPD is now working out the practicalities of the operational service in Germany. As with its other overseas initiatives, IPD will be responsible for collecting the data and for the number crunching.
It is unlikely to be possible to produce a great deal of retrospective data for the three new country services, though current data and comparable figures for a year earlier should be possible, thus allowing an annual performance figure to be produced from the outset. If the experience of IPD's development in the UK is any guide, institutional property investors who have not already signed up will quite rapidly appreciate the advantages of contributing details of their portfolios to the service. Not only does IPD produce benchmark indexes but it also offers subscribers a comparative analysis of their own property portfolio performance.
The other advantage of reliable property benchmarks is that they pave the way for the introduction of various types of property derivative. Property futures and the like need to be linked to a widely accepted index of the market, and IPD's indexes are the ones adopted for this purpose in the UK. Michael Brett