UK market overview
Average secondary market pricing improved across all UK sectors last month, capping an inward shift of around 7% for the 12 months to date, writes Ashley Marks. Pricing is being driven by limited supply and strong investor demand, coinciding with positive returns for most of the balanced funds (see table).
Pricing remained unchanged last month, at an average premium of around 2%, as supply is still constrained. Demand is strong, with pricing at or just below offer price for the most popular funds. Average pricing has moved from around a 2.5% discount to NAV in December 2012 to a 2% premium last month, driven by returning investor confidence, as large amounts of capital pushed yields in via the investment market. Some funds have large primary queues and a lack of opportunities to deploy commitments.
Pricing was largely unchanged last month, with investors continuing to seek core and prime assets at small discounts to NAV. There was plenty of activity in The Mall shopping centre fund, with Capital and Regional raising its stake from 26% to 29%, at a small discount to NAV. Average shopping centre pricing moved from around a 7% discount to NAV in December 2012 to around a 3% discount last month. Of the retail warehouse funds, there has been strong demand for Hercules Unit Trust in the wake of its pending redemption queue, with pricing at bid (around a 4% discount) or better as investors seek prime, dominant assets with a strong income yield. Average retail warehouse pricing moved from around a 9% discount to NAV in December 2012 to around a 4.9% discount in December 2013.
Investor demand remains strong, with pricing improving as investors seek income and supply for quality funds is constrained. Average industrial pricing moved from an discount of around 19% in December 2012 to around NAV last month, the largest inward shift of the all indirect sectors in 2013, driven by the restructuring of Ashtenne, which has moved from around a 50% discount to NAV to around a 5% discount.
December valuations reflected central London’s strong investment market, with WELPUT and CLOF achieving capital uplifts of around 5%. Sellers of both funds are scarce. Of all the sectors, offices showed the smallest inward movement in pricing, of around 1.25%, over 2013, but outperformed.