Definition of commercial property indices

Commercial property indices are constructed to measure the performance of commercial investment property and operate in a similar fashion to any other index of asset performance.  Indices can be of both actual properties or constructed from hypothetical properties in different locations.

Indices usually produce annual, quarterly or monthly indices of income return, capital value change and total returns, as well as a number of other measures.  Because of the individuality of property assets and the relatively low volume of transactions, commercial property indices are normally valuation rather than transaction based and it is widely held that the low volatility in these indices is caused to some extent by the use of valuations.  Property market indices are a relatively new phenomenon and although they are developing in many countries, many of them have very short histories.

A number of property consultants produce market information on commercial property markets and some use valuations of hypothetical modern properties in prime locations to measure value change in markets rather than in specific properties, eliminating the impact of depreciation on these measurements.

Example

The indices with the most coverage of actual properties in the UK is the Investment Property Databank (IPD) which produces various measures as indicated above across a number of property types and regional locations. The latest quarterly index (to end of June 2011) was based on properties held mainly by the major property companies and financial institutions to the value of £112.7 billion encompassing over 9,000 properties from 236 separate funds; 50% retail, 30% offices and 15% industrial and 5% other property types.

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