Global information firm IPD said strong growth in rental values continued to drive returns.
The constraints on mortgage finance availability and limited development opportunities, a result of the UK government’s construction cuts, had continued to drive up demand for the private sector.
It added that UK residential assets continued to outperform commercial property in the first half of the year, though growth was predominately driven by demand for London stock.
Total return for the first half of the year (H1) was 3.1% for residential, against the 1.2% delivered by commercial.
But the private housing market, as measured by the Nationwide house price index, saw values sliding by almost 1.4% in H1 2012. As a result, long term capital growth in the commercial sector has surpassed private house price growth for the first time, due to low demand amongst private buyers and improved management in the commercial sector.
Mark Weedon, head of alternative investments at IPD said: “Most of the headlines around residential property focus on super prime central London assets, which have been experiencing phenomenal growth.
“However, it is worth taking a more balanced view of the returns offered in the sector, because many of the new investors looking at residential property, if they want to achieve returns less weighted towards capital value growth, and find a larger amount of stock, will need to look outside of prime central London.
“Though returns in the regions are more affected by the current downswing in the UK economy, this does mean, for those investors that are interested, lower capital outlays and higher income yields – and demand remains strong, so income should remain secure in prudently selected and well managed assets.”
Source: IPD UK Biannual Residential Market Indicator
