Commercial property was once again the UK’s best-performing asset class in 2006, trumping returns generated equities and bonds

Publishing figures for the fourth quarter of 2006, the Investment Property Databank said commercial property generated a 3.7% return in the last three months of the year. This takes the return for the calendar year to 17.9% - outstripping returns delivered by both UK equities and bonds which earned investors 16.8% and -0.1% respectively.

The All Property total return for the calendar year was 17.9%, very nearly matching the 18.5% return for 2005 and the 18.8% return for 2004. This has taken the three-year annualised return to 18.4% and the five-year annualised return to 15.1%.

The official figures for the performance of UK commercial property in 2006 will be revealed on 23 February, when the IPD publishes its annual index - the key Benchmark for performance in the sector.

The 3.7% fourth quarter total return was down 10 basis points on the return achieved in the corresponding period last year, owing to a slowdown in its capital growth component to 2.5%. The income return component remained steady at 1.2%.

Rental growth picked up pace in the fourth quarter, accelerating from 0.9% in the third quarter to 1.4% in the last three months of 2006.

Offices was the most buoyant sector for the fifth successive quarter, generating a 5.3% return between October and December. West End and Mid Town offices proved to be the sectors’ top performers after delivering a 31.9% total return over 2006 compared to the 15.5% achieved by retail warehouses.