2012 is going to be the year of the opportunity fund, runs a common but misconceived prediction. Misconceived not because they won’t be active; misconceived because the label “opportunity fund” is slipping out of fashion. “Value fund” is very much the new black.
This rebranding is interesting, but a sideshow. It is the impact that these funds will have over the year ahead that will be far more significant.
According to a comprehensive review of the sector by Estates Gazette finance editor Bridget O’Connell this week, 2012 will be crunch time for this clan. Investment periods are expiring for many, opportunity (their raison d’être) is thin on the ground, yet 20%+ returns are expected.
What to do?
Some will and have sought extensions to their investment periods, hoping that the signs that banks are prepared to engineer the release of more stock are real. Investors will expect to be more handsomely rewarded for their patience, however.
Similarly, some will seek to raise more capital so they are fully armed for this bank-driven tsunami of stock later this year. There will be opportunities to be had – or value to be pounced upon – in the second half, they will no doubt tell investors, once values decline in the first.
To which investors will no doubt respond: “That’s all well and good, now let’s see some return now and talk about your fees.”
With DTZ identifying eight of the top 10 funds with available capital as opportunity funds, an issue of market-moving proportions requires resolution.
Crunch time indeed.
Three more indicators that paint a mixed picture for 2012 were seen this week.
The good: Sheds are sexy. Some £1bn of logistics sales took place in the week leading up to Christmas, a total not seen by IPD in the decade that it has been monitoring the market.
And there is every reason to suppose the industrial market will be more resilient than most in 2012. Web-based and multichannel retailers continue to demand space, sectors such as automotive are a rare success story right now, and there are indications that manufacturers are reversing a trend of recent years and returning operations to the UK.
JLL estimates that there is 24m sq ft of slated enquiries for logistics units over 100,000 sq ft in the South and the Midlands alone.
The bad: “There is now arguably the most significant two-tier market in a generation,” says Richard Auterac of auctioneer Acuitus. He is referring, of course, to the polarising auctions market, where safe-haven assets continue to attract private investors and the rest – regional retail, in particular – is shunned.
The upshot is that commercial yields have weakened over the year by 70 basis points to close at 9.1%. It all adds up to a wider indicator of commercial property’s year ahead, perhaps.
And the ugly: The dangers of the government’s localism agenda were highlighted this week with the news that Prologis’ 1.2m sq ft letting to online superstore Amazon in Cheshire risks being derailed after a parish council sought a judicial review against the scheme. It could delay progress for a year.
Amazon would no doubt look elsewhere and miss out on its first choice. Prologis would lose a valuable letting. And for the local area? Well, a neighbouring landowner is looking to develop a scheme with a similar square footage anyway.
It may sound like the plot of a Tom Sharpe novel, but it highlights a danger at the heart of the government’s plans.
