There has been an easing in pricing of funds across the board, but this has been most pronounced in the UK balanced funds, where offer pricing has shifted from an average 0.4% premium to NAV to a -3.6% discount to NAV, CBRE reports, based on its six-strong fund sample of relevant European funds. The average masks a range of between -1% to -6.5% at the fund level, in the first half of the year.
The pricing data is sourced from CBRE’s PropertyMatch secondary fund trading platform and illustrates the broader slowdown in investment volumes across the UK and Europe.
Dominic Smith, Senior Director, Research at CBRE, explains:
“This weakening had been anticipated, given the severe discounts available on specialist retail funds and the level of exposure to retail property within the balanced funds. In Europe, balanced funds have largely been immune from the woes of their UK counterparts, reflecting greater investor confidence in the short- to medium-terms prospects for the underlying market, but also (and as seen in public equity) a less dramatic sell-off of retail.
“In the UK, capital is arguably more discriminatory, attracted to alternative strategies, such as PRS, healthcare, student accommodation and social infrastructure, and logistics, but wary, in the absence of political clarity, to commit beyond this.”
Greater resilience is found in the UK in the long income space, reports CBRE, where pricing has been firmer and remains at a premium to NAV. Underpinned by strong flows from pension funds increasingly seeking to use real estate primarily to match cashflows (rather than to deliver capital growth), this sector of the market looks set to remain in demand.
Specialist fund pricing correlates closely to those areas of the market where CBRE identifies the greatest – or lowest – competition among investors to place equity. In Europe, most geographies and strategies will attract solid demand from investors with reasonable if modest expectations of short-term growth – though lack of urgency can of course slow deployment. Investors remain eager to access alternative sectors and logistics, continuing the trend of recent quarters.
CBRE’s H1 2019 European market analysis continues all week.