Conviction wanes but value remains
Investment volumes were lower in H1 2019 compared to H1 2018, reflecting a global trend of weakening confidence. But on a longer terms basis activity was robust, and investors continued to express preference for alternative sectors of the market.
- REITs have been trading at levels of discount to NAV for a period of time that historically might have triggered more corporate activity.
- That this has not occurred indicates a lack of conviction in calling the bottom in discounted sectors, even at current prices.
- Instead, M&A activity has actually been concentrated in sectors priced more aggressively, where investors nonetheless have more confidence in long-term sustainable income growth.
- UK balanced funds are now universally trading at a discount to NAV, as the drag from retail valuation declines is reflected in pricing.
- Long income and European balanced funds remain in positive territory, underpinned by more robust investor demand.
- Investors remain eager to access alternative sectors and logistics, continuing the trend of recent quarters.
- Steady CMBS flow over the quarter; six issuances totalling over €1.5bn.
- A similarly healthy second half is expected, as while easing pricing remains attractive to all parties.
- Investors continue to show caution, particularly in relation to jurisdictions or sectors where they perceive unwanted risk.
- Significant weight of capital targeting private debt as offering good value on a risk-adjusted basis at this point in the cycle.
- Momentum is strongest for logistics, including development, and alternatives sectors, including PRS.
- Many lenders though are seeking to reduce exposure to retail, where acquisition and refinancing can prove challenging.