Property performance analysis and performance indices: A review

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Abstract
This paper examines the role of performance analysis in property fund management. It argues that the analysis of historic performance should play an integral role within the investment process and that it provides a potentially powerful tool with which to take more informed investment decisions. However, it is contended that the usefulness of performance analysis in the property field is often not appreciated and that more attention should be directed towards the interpretation and evaluation, rather than the description, of historic performance. Performance evaluation cannot be confined to absolute terms and some comparison, relative to a benchmark, is necessary. Several property performance measures are now regularly published in the United Kingdom and their contribution to improving knowledge in the property market should be welcomed. However, the existence of several indices has also caused confusion. After briefly reviewing the difficulties of constructing property performance indices, the paper compares the published measures according to their composition, construction and results. It concludes that the characteristics of performance measures must be fully appreciated in order that, first, the most suitable measure is chosen in any particular circumstance and, second, that comparisons are made on a consistent basis.