Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balanced Fund Index continued its unremarkable progress in June, writes Ashley Marks, rising 0.17%, compared to a 0.11% rise in May and taking the 12- month return to -2.73%. This improves to -2.41% including secondary market pricing.

Balanced funds

There were modest pricing improvements in June, driven by demand for higher- yielding funds, for example Schroder UK Property Fund and Threadneedle PUT. Lothbury, Threadneedle PUT and Hermes PUT continue to transact at premiums of 2-4%. Most other funds (such as BlackRock, UBS Triton and SUKPF) are priced at or just below net asset value. UBS Triton has moved to around a 1% discount, from discounts approaching 20% just six months ago.

Retail funds

Transactional evidence has been thin, but in the shopping centre sub-sector Lend Lease Retail Partnership had the greatest pricing movement, from around -8% discounts to NAV two months ago to closer to -6% discounts. This trend is likely to continue in the short term, driven by limited availability.

Pricing elsewhere remains broadly static. Henderson Shopping Centres and Standard Life continue to attract around 6-8% discounts to NAV, with units available.

Retail warehouse pricing improved by 0.30% over the month, with 7-9% discounts to NAV for Hercules, Henderson and Standard Life. More investors are seeking to adjust their weightings within the sector.

Industrial funds

June was a quiet month, an improvement  in overall pricing largely reflecting slightly stronger demand in Ashtenne, albeit still at significant discounts of around 40% to NAV.

L&G IPIF is still the sector’s fund of choice, following its extension and merger with CBRE Falcon. Pricing moved over 1% to around a 3% discount. SWIP’s AIPUT pricing remains at around a 1% discount to NAV.

Office funds

There was a modest pricing improvement over the month. WELPUT and Henderson CLOF’s quoted prices continue to stand at a 2-4% discount to NAV, with the latter at the lower end of this scale, as investors await the outcome of the fund’s extension.

Unite UK Student Accommodation Fund has remained steady at around 2-3% discounts to NAV, despite recent attempts to raise equity. X Leisure’s pricing is still improving as structural changes to the fund take place; it is priced at around 2-4% discounts to NAV.

Continental Europe

There is a growing appetite for European funds on the secondary market due to investors’ ability to fully underwrite seeded portfolios, with demand in all risk profiles, from core to opportunistic. Buyers will consider all geographic areas including central and southern Europe, but the main focus is Germany, France and the Nordics.

The number and diversity of interested parties is also increasing, but challenges remain in estimating pricing prior to deals’ advanced stages. Typical lot sizes continue to be far larger than in the UK, with JLLCF recently completing a €100m transaction in a European industrial portfolio, for example.