Welcome to our annual Business Parks Index which tracks the performance of select UK business parks to enable us to benchmark the performance of the best parks versus the wider IPD universe,and understand the key drivers of return.

The Strutt & Parker Business Parks Index measures the performance of assets on a select sample of business parks from within the wider IPD sample. These parks have been identified to give investors a overview of how the best parks perform relative to the wider market. Typically they are characterised by the provision of good accessibility, amenities, car parking and site management.

The sample for 2013 consists of 129 assets across 51 parks, valued at £1.38 billion as at 31 December 2013.

In 2013, S&P Business Parks saw a return of 10%, driven by capital growth of 1.5%, a function of tightening yields, and an income return of 8.4%. The wider IPD sample outperformed at 11.5%, off the back of stronger capital growth. Similarly, superior capital growth led to IPD’s Standard Office sample (excluding Central and Inner London) mildly outperforming S&P Parks.

Monthly figues to end-June 2014, a smaller sample, suggest that performance is accelerating in 2014. The six-month total return of 10%, based on a 3.6% income return and 6.2% capital growth, suggests annualised returns of 20.9% for 2014.

Whilst a return to double-digit returns for the sector is a welcome move in the right direction, we should not lose sight of the fact that the sector has many challenges. Rental growth in 2013 on S&P Parks was flat, and we cannot count on performance from yield compression over the longer-term. High yields against gilts and stable income suggest that the sector can achieve attractive return premiums. However, investors will need to bear in mind the attractive yield premium is no ‘free lunch’. Future requirements in terms of capital expenditure to maintain competitiveness and, perhaps, where parks are in multiple ownership, contributions to park-wide projects will need to be explicitly considered to truly understand the path of future returns.

I hope you find our research both informative and of genuine commercial use when considering this asset class, and would welcome your views on any of the subjects raised. If you would like to discuss the research and its implications in further detail, our research team would be delighted to hear from you.

Andy Martin
Senior Partner

View the full Business Parks Index 2014.