27th November 2014
Of all the key asset classes UK Commercial Property has delivered the best investment returns over the past year according to a report from Lloyds.
The latest Lloyds Bank Private Banking Assetwatch report, which tracks the value of UK Shares, Global Equities, UK Bonds, International Bonds, Cash, UK Residential Property, Commodities, Precious Metals and UK Commercial Property found that the latter category grew by 20.1% in the year to October, the highest among the nine asset classes.
Investment returns on UK Commercial Property have been boosted by falling yields, as investor confidence improves; whilst the continuing economic recovery has lifted rental growth.
Ashish Misra, head of investment policy at Lloyds Bank Private Banking, said: “Investment returns on UK Commercial Property have been boosted as investor confidence has improved on the back of a positive economic outlook. Recovery in both the occupier and investments markets has been in full swing for much of the past two years raising demand, and with supply slow to respond, driving up rental growth and capital values. Whilst demand in London has driven returns for much of the period, recovery in the regions appears to be coming through more strongly now as well.”
But the report highlighted that the overall average annual return for the nine key asset classes has edged down from 4.6% in October 2013 to 3.9% in October 2014.
For their part Global Equities rose to a record monthly high in October providing returns, as measured by the MSCI World Total Returns Index, of 12.8% in the past year – the second highest in the review. Although global economic activity has been moderate, the study found that the distribution of the growth has been uneven; with a quickening pace in the US and UK, slowdown in the Eurozone and little change in China. The European Central Bank’s further cut to its interest rates and intended purchases of asset-backed securities to stimulate the Eurozone economy are likely to have been supportive.
After Commercial Property and Global Equities, the largest returns were in UK Residential Property, up 11.3%.
Investors in Precious Metals and Commodities have however been left nursing some hefty losses after enduring respective falls of 17.8% and 4.9%. During the period, the price of gold fell by 11.9% and silver by 10.5%.
But on the agricultural side coffee delivered the largest commodity price rise, after soaring by a massive 76.1%. Rising supply side pressures resulting from the worst drought in 50 years in Brazil, the leading coffee producing nation, have underpinned the marked increase in prices. In contrast, soft wheat was the worst performing commodity, recording a 34.9% price decline. Crude oil, corn, soya beans, heating oil and hard wheat also recorded price declines in the range of 16% to 27.5% based on expectations of increased supply. On the other hand, there were price increases in zinc, up 20.7%, aluminium which is 13.3% better, and cocoa, up 9.5%.
Over the past year, total returns – based on house price growth and rents – from UK Residential Properties grew by 11.3%, driven by average house prices rising by 7.6% and returns on private rents growing by 3% between October 2013 and October 2014.