Indirect investment market: JLL commentary

UK market overview, June 2014

In May, average secondary market pricing inched in by 0.10% to an average discount to net asset value of just 0.22%, writes Ashley Marks. Pricing improved due to strong demand for shopping centre and retail warehouse funds, as valuations improve. There was slight downward pressure on office fund pricing due to lack of demand, caused by structural uncertainties about funds.

Ba lanced funds

Balanced funds returned capital growth of 1.22% on average in May and 9.35% in the 12 months to date (ex income). As we near the end of Q2, expectations will increase, driven by a strong investment market. Balanced fund pricing was unchanged in May at an average 3.41% premium to NAV, as most open-ended funds remain at or close to offer price. On a rolling 12-month basis, we expect overall returns to fall for secondary market investors, now that the discounts available a year ago are all but gone.

Retail funds

Average three-month shopping centre fund performance remains strong, reflecting the direct market for high-quality assets. Demand for Henderson’s Shopping Centre fund rose as pricing moved from a 1% discount to NAV to parity (NAV). Pricing for The Standard Life Shopping Centre fund stabilised at NAV as investors consider a fund extension proposal. Of the retail warehouse funds, Hercules Unit Trust returned 4.1% due to a £72m sale at a 4.4% net initial yield. Pricing moved from a NAV discount of around 2% to around a 3% discount. Standard Life Retail Park Trust pricing moved from a discount of around 3% to around a 2.5% discount, as capital values rose 0.9%. The fund’s life is being extended.

Office funds

Vendors of CLOF and WELPUT remain limited as investors enjoy the sub sector’s strong performance. Both funds achieved around a
2.4% capital return in May and are likely to achieve capital growth of over 4% for Q2. Secondary market pricing for CLOF and WELPUT remains at a 4-3% discount to NAV.

Continental Europe

Demand remains strong from investors looking to increase the weight of their Europe allocations. Pan-European opportunity funds with strong portfolios are now transacting in single-digit discounts to NAV.