Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balanced Fund Index continued its downward trend in August, falling -0.53%; the largest fall since the trough of summer 2009, writes Ashley Marks. The index has also fallen into negative territory for the 12-month returns, at -1.12%, or -2.51% when secondary market pricing is taken into consideration. This is due to the steady decline of secondary market pricing since mid-2011. The largest fall was seen in the industrial sector at-1.85%, followed by the retail warehouse sector at -0.58%. Offices saw a tiny incremental increase in pricing, of 25 bps.

Balanced funds

Pricing on balanced funds continues to hover around NAV. Lothbury PUT and Hermes PUT are the exceptions, with around 2% and 1.5% premiums to NAV respectively. Most other balanced funds continue to transact in lot sizes of less than £10m, between NAV and bid price, including Threadneedle PUT, BlackRock UKPF and Schroder UKPF (formerly SEPUT). RREEF UK Core is an outlier, with a recent transaction occurring at a 20% discount to August NAV after a circa 10% fall in the fund’s July valuation.

Retail funds

Pricing of shopping-centre funds remained relatively flat. Standard Life Shopping Centre fund pricing has decreased from a 5% discount to NAV in July to -6% this month and Lend Lease Retail Partnership is transacting at around -8.5%, a slight improvement from -9%. Pricing for the geared The Mall remained steady at -30% and the Henderson Shopping Centre fund is transacting at -6.5%. Retail warehouses declined further, with pricing moving out by an average of over 0.5%. Pricing for both the Henderson Retail Warehouse fund and Hercules Unit Trust is around a 10% and 12% discount to NAV. The ungeared Standard Life Retail Park Trust decreased to NAV -6% as, like its its sister shopping-centre fund, the fund gets closer to its termination date.

Industrial funds

Industrial pricing generally fell in July and August. L&G IPIF has decreased by around 0.5% in the past two months to NAV -7.25%. Buyer interest in The Industrial Trust and Ashtenne is thin, pushing discounts out to at least 30% or 40% respectively. The exception has been SWIP AIPUT, which recently transacted at NAV -2%, an improvement of more than 200bp.

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Office funds

Pricing in WELPUT improved from -7% in June to around NAV -5% in August, thanks to lack of vendors. However, the Henderson Central London Office Fund’s upcoming expiry is starting to affect sentiment, with August seeing an increase in vendors and pricing subsequently falling 50bp to NAV -4%.

Other funds

There have been several recent transactions in L&G’s Leisure Fund at or around NAV, as the fund manager prepares to seek new capital. Transactions at NAV have also occurred in the Unite UK Student Accommodation Fund on the back of its strong performance. There is a distinct absence of buyer interest in Quercus until the fund extension is resolved. Vendors are offering units at NAV -10%.

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