The plethora of yields in property investment and finance: a summary
| Date | 06 July 2015 |
| Pages | 408-414 |
| DOI | https://doi.org/10.1108/JPIF-04-2015-0026 |
| Published date | 06 July 2015 |
| Author | Nick French,Michael Patrick |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
EDUCATION BRIEFING
The plethora of yields in
property investment and finance:
a summary
Nick French and Michael Patrick
Department of Real Estate and Construction, Oxford Brookes University,
Oxford, UK
Abstract
Purpose –The purpose of this paper is to provide a summary, with examples, of the various types of
yields that are used as benchmarks in the UK for property and finance.
Design/methodology/approach –Simple examples explain the differences between the various
benchmarks used for different assets.
Findings –The paper highlights the differences between the various benchmarks for different assets.
Research limitations/implications –This is an Education Briefing.
Originality/value –The paper provides a summary of the various types of yields that are used as
benchmarks in the UK for property and finance.
Keywords Property, Returns, Bonds, Benchmarks, Gilts, Yields
Paper type General review
Introduction
There is always a lot of confusion about the calculation and use of the plethora of yields
types found within the property and finance professions. It should be remembered that a
yield is simply an expression (normally in percentage terms) of the attractiveness of an
investment. It is a benchmark; nothing more, nothing less. Different investors use different
benchmarks. Different investors will want to relate the attractiveness of the investment
against a range of different criteria. Thus different yield types will reflect different criteria
and different viewpoints. It is for this reason that you should always ensure that you are
comparing like to like. For example, an All Risk Yield (ARY) (for a particular property)
cannot be directly compared with a Target Rate (for the same property).
In this summary, which is by no means exhaustive, the main property and finance
yields are considered.
Types of property yield
For the property world, the following yield types will be considered:
(1) Rack-rented property:
•the Net Initial Yield (NIY) (implicit);
•the ARY (implicit);
•the Target Rate (explicit DCF); and
•the Internal Rate of Return (IRR) (explicit DCF).
The yields listed under (1) are all related to a property that has just been let, or
reviewed, to Market Rent (MR).
Journal of Property Investment &
Finance
Vol. 33 No. 4, 2015
pp. 408-414
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-04-2015-0026
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
408
JPIF
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