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

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

3. Definition of PCL

4. 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

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

6. 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

7. Total Return Performance
Source: KF Research, IPD

8. Capital Growth Performance
Source: KF Research, IPD

9. Income Return Performance
Source: KF Research, IPD

10. 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

11. Total Return Performance

12. 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

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

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

15. 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.