UK market overview
The Jones Lang LaSalle Balanced Fund Index rose 0.29% and 0.22% respectively in July and August, compared to 0.15% in June 2011, writes Julian Schiller. The index is up 2.50% since the start of the year and 3.20% over the past 12 months. Taking into account secondary market pricing, the
12-month return increases to 4.62%.
Investors appear increasingly selective in their acquisition strategies, with fewer deals and a fall in demand for larger lot sizes compared with the first half of the year. Recent turmoil in the wider financial markets has had a negative impact on secondary market pricing. However, 2011 has proved to be a strong year for secondary deals; JLLCF estimates that total transaction volumes so far this year have already exceeded full-year 2010 volumes.
Trading has focused on sub-£5m lot sizes, with trades occurring in funds managed by Blackrock, Threadneedle, Lothbury, Hermes and Aviva. The larger number of deals in open-ended funds than closed-ended ones reflects a higher level of fluidity.
There are signs of an easing in premiums for the more sought-after funds. JLLCF estimates that the average premium for our balanced fund universe (a sample of the more liquid funds) has fallen from 1.6% in July to 1.4% in August. This is most likely a result of wider market concerns filtering into market participants’ pricing expectations. There have been trades at between -1% and 4% to prevailing NAV, but this large range reflects some outlier trading activity.
Shopping centre funds
Trading in Q3 fell from a high level in the first half of the year, with only a few deals in smaller lot sizes. The deals that did occur were in funds managed by Lend Lease and Standard Life, at small discounts to NAV. Pricing in the past three months has been largely stable, with 1-4% discounts for Lend Lease, Standard Life and Henderson funds. Capital & Regional’s reduction of its holding in the Mall Fund has had a negative impact on recent demand for the fund, as potential buyers prefer to monitor the situation.
Retail warehouse funds
The pricing correction in this sector eased in August, following a trough in pricing during Q2. Pricing now remains relatively stable compared with July. Pricing for Hercules Unit Trust, Henderson Retail Warehouses Fund and Standard Life Retail Park Trust is within a narrow band of 2-4% discount to prevailing NAV.
Average premiums to NAV for central London office funds fell slightly in August, for the first time in 12 months. But pricing remains above around 2% for Henderson CLOF and WelPUT. Lack of availability in central London office funds will maintain broad pricing levels, although some larger investors are using the direct market and/or joint ventures to satisfy demand. JLLCF is not aware of any regional office fund deals, despite some unit holders’ desire to exit their positions.
Deals continue to occur in L&G IPIF and SWIP AIPUT at small discounts to June NAV. Activity in other industrial vehicles remains muted.