UK commercial property delivered a total return of 18.1% in 2006

According to the Investment Property Databank UK annual index, which was published this afternoon, returns in 2006 were only a percentage point below the 19.1% peak-of-the-cycle return in 2005.

This takes the three-year annualised return to 18.5% a year and the five-year annualised return to 15.1% a year. Property last year outstripped both UK equities and bonds, which produced returns of 16.8% and -0.1% respectively.

The IPD annual index now reflects the performance of 12,137 properties valued at £192bn and spread over 278 separate portfolios. The result closely matches the 17.9% total return of IPD’s quarterly index, which is based on a sample of around 8,000 assets worth £122bn.

The main cause of the small divergence in returns was the higher weighting in offices in the annual index - the strongest performing sector in 2006.

Research director Malcolm Frodsham said: ‘Investors in the fledgling property derivative market generally still reference the result of the larger IPD annual index to settle trades, though interest in trading the quarterly index, which matches the three-month LIBOR payment regime, is growing strongly.’