UK market overview
The Jones Lang LaSalle Balanced Fund Index rose 0.30% in March, compared with a 0.45% rise in February, writes Julian Schiller. The index has risen 0.97% since the start of the year and 4.67% over the past 12 months.
Taking into account secondary market pricing, the 12-month return falls to a more modest 2.02%. The big net asset value rises of late 2009 and early 2010 are clearly no longer included in the one-year analysis.
The secondary market was particularly active in 2010. According to IPD, volumes were around 50% higher in 2010 (at around £1bn) than in both 2008 and 2009 (when around £650m was transacted in both years). But this is still a decline from the peak in 2006, when £1.5bn of deals were transacted.
Deal volumes were certainly lower in Q1 2011 than in Q4 2010. There is a distinct lack of liquidity, largely due to the relative lack of buying interest by multi-managers and funds of funds, following a widening of the gap between bidding and asking prices.
This sector is still the most active in terms of deal numbers, and activity at the sub-£5m level remains relatively healthy. Deals in the more liquid funds such as Threadneedle PUT, Blackrock and Hermes PUT, are occurring at above NAV. This is not the case for less liquid funds such as Henderson and Hanover, where pricing is typically between the bid price and NAV. On average, all funds are trading between plus or minus 2% of NAV.
There have been several significant trades in core shopping centre funds, but pricing is confidential on these deals. The core/prime funds are in greatest demand, and not just from UK investors, with much interest emerging from outside the UK.
In terms of sub-sectors, Standard Life’s and Henderson’s shopping centre vehicles are the most sought-after funds, with pricing at small discounts to NAV.
The only funds of interest in the retail warehouse segment are Hercules Unit Trust, and Henderson’s and Standard Life’s funds, where pricing is at discounts between 3% and 10%.
Demand for industrial funds remains low. As with last month, activity has been limited to IPIF, but trading has been slow even for this fund. Pricing remains at around a 2-5% discount to NAV. In general, there is a distinct lack of interest for secondary quality portfolios and for funds with high gearing.
The only real interest is focused on Central London offices. Funds specialising in this segment can easily achieve premiums, which have risen to around 1.5% above NAV. The Henderson Central London Office Fund and WELPUT are the only funds with any real liquidity, but demand outstrips supply.
Interest remains strong in student accommodation, healthcare and leisure funds. Deal volumes have been hindered by differences in pricing expectations, with pricing varying widely from fund to fund.