Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

Reflecting the trend for the year, the Jones Lang LaSalle Balanced Fund Index continued to fall in September, by 0.23%, to -1.41% over 12 months, writes Ashley Marks. This falls further to -2.74% when secondary market pricing is considered, reflecting both a fall in property values and the resulting negative sentiment in the secondary market.

General secondary market pricing fell slightly across most of the market in September. As with last month, the biggest faller was the industrial sector, down around 1%, followed by a modest 0.25% fall in the office sector. Retail pricing improved slightly.

Balanced funds

Balanced fund pricing has hovered around net asset value all year, with almost all funds trading between NAV and bid price: the exceptions are Lothbury PUT and Hermes PUT, which continue to attract pricing between NAV and offer price.

RREEF UK Core Property Fund remains available at a big discount to NAV, driven by concerns about its resilience and uncertainty surrounding the stability of its management.

Retail funds

Shopping centre fund pricing was generally stable in September, the only movement being a rise of around 50bps in the Lend Lease Retail Partnership’s pricing, to -8%. The Mall’s pricing held at around -30%, while Standard Life’s and Henderson’s funds both remained at around a 6-7% discount to NAV.

Retail warehouse fund secondary market pricing also remained broadly stable. After several months of price falls, discounts for the Henderson Retail Warehouse fund and Hercules Unit Trust hardened this month to around 11% discounts to NAV. The Standard Life Retail Park Trust’s pricing fell slightly to around -6.5%. No secondary trading was noted in other UK retail warehouse funds.

Industrial funds

Pricing continued to fall, to a three-year low, thanks to a fall in pricing for funds with higher gearing levels and a greater number of secondary assets. Ashtenne fell a further 5%, trading at a 45% discount to the June NAV.

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Pricing for L&G IPIF and SWIP AIPUT held firm or improved slightly, with the funds now priced at around -7% and -2% respectively. JLL did not observe any trades in Falcon, The Industrial Trust and RREEF Industrial funds.

Office funds

WELPUT pricing hardened in September to around -5%, with sellers unwilling to trade at Q2 levels of around -8%.

Henderson Central London Office Fund fell 0.5% to around -4.5% this month, largely due to uncertainty about the fund’s upcoming expiry. No activity was seen in regional office funds. Limited demand for UBS CLOVA has created a bid/ask spread of -5% to -8%.

Other funds

There has been strong interest in the Unite UK Student Accommodation Fund and its pricing has moved for the first time this year to premium territory, at around 1%, from discounts of around 3% earlier in the year, largely due to the sector’s and fund’s strong past performance.

Buy-side interest in L&G Leisure remains at around NAV, while trading in Quercus has been largely on hold until investors gain reassurance about its extension. Vendors are willing to sell at discounts of 10%, but buyers are seeking far greater discounts than this.