The long–run performance of Prime Central London residential property and estimating changes in correlation to alternative asset classes.

Introduction Why PCL Residential Property Definition of PCL Size of market Asset Performance Asset correlations Rolling Correlations ACF Functions

Definition of PCL

Why PCL Residential Property Asset class that receives a lot of attention, particularly in UK press Large focus on foreign investment and motivations Academically and professionally little quantitative work Data sources on performance, especially total returns poor

Size of Market Source: RCA, Land Registry, Lon Res, KF Research

PCL Price indexes PCL sales index dates back to 1978 Both Sales and Rental indexes are based upon repeat valuation of a basket of over 300 properties Net rental income derived from taking into account management fees, vacancy rates, agency fees etc.. From gross rents Methodology very similar to IPD’s

Total Return Performance Source: KF Research, IPD

Capital Growth Performance Source: KF Research, IPD

Income Return Performance Source: KF Research, IPD

Total Return Performance Q1 2001 to Q4 2016 Shop - Central London Office - Central London London - Retail London - Office All Property PCL Min -10.0% -14.4% -14.6% -14.1% -13.0% -9.1% Max 8.3% 9.4% 11.5% 8.9% 9.9% 9.1% Mean 3.0% 2.2% 2.3% 2.1% 2.6% 3.9% Median 3.25% 2.87% 2.98% 2.82% 2.49% 2.38% Geomean 2.9% 1.9% StdDev 4.1% 3.6% 4.0% 3.4% 3.5%   Skewness -1.69 -2.09 -1.72 -1.87 -0.69 Kurtosis 7.89 7.09 10.65 8.66 4.25 Berra-Jarque Test Statistics 94.21 75.20 202.59 76.10 122.99 9.19

Total Return Performance

Asset Correlations 2001 Q1 to 2016 Q4   PCL Total Return Shop - Central London Office - Central London London - Retail London - Office All Property FTSE 100 treasury 10 year bond Gold 1.00 0.46 0.64 0.93 0.47 0.94 0.90 0.63 0.52 0.99 0.18 0.31 0.29 0.33 0.32 -0.10 -0.03 0.03 0.07 -0.11 -0.05 -0.22 -0.23 -0.25 -0.24 -0.08 Source: KF Research, IPD, Macrobond

Rolling correlations Property 5 year window Source: KF Research, IPD, Macrobond

Rolling correlations Assets 5 year window Source: KF Research, IPD, Macrobond

Further Work Preliminary analysis shows no evidence of cointergration between the commercial assest and PCL There does seem to be strong evidence that the retail and office markets in central London lead PCL residential by 2 Quarters Compare too other residential returns in UK to fullest extent possible.