Total returns for shops, offices, industrial and housing in regeneration areas have outperformed their respective sectors in more established locations over the past five years, according to Investment Property Databank (IPD).

Over five years to end-2006, IPD’s urban regeneration index has delivered 16.7% total returns year on year compared with 15.1%on its main annual UK index. Even with higher returns, IPD said, regeneration areas have seen lower volatility than elsewhere.

IPD created the regeneration index five years ago with backing from Morley Fund Management and English Partnerships to determine why investors had historically shunned urban regeneration.

Such negative ‘investor attitudes may have been a mistake’, said IPD. However, the institutional appetite for regeneration area property has increased over the five years, with retail as the driving force behind performance.

Released today, the latest index covers housing for the first time, with input from Savills. Over five years, residential capital growth has averaged 14.4% in regeneration areas against 13% in surrounding districts.

‘But it has proven difficult for investors and developers to capture this uplift, pointing to an opportunity for new types of investment for residential development to arise,’ said Savills research director Yolande Barnes.

The overall index is based on a sample of 581 investments in 20 regeneration areas across England, with a total capital value of £7.5bn.