Commercial Auction
The Commercial auction market can react very quickly to external events and is often seen as a barometer for the wider private treaty market which has had a subdued time with weaker volumes and correspondingly weak buyer appetite. This can help supply in the auction room where buyers have a clear deadline and new buyers add to the competitive tension to get transactions done and as we confirm later on, our volumes remain a little ahead of last year at this point.
The last quarter has had two very different perspectives from the heatwaves of the summer which were accompanied by an optimistic view of inflation under control and rates having peaked.
By the time the weather broke, this was reversed and 5-year rates are now 10% higher than the middle of the year. This puts pressure on pricing in our high yielding market as equivalent yields need to compete with a relatively risk free and for the private buyer a tax free, return with Government gilts approaching 5.5%.
Nevertheless we assembled a strong catalogue over the Summer and the sale, launched in September raised over £70M with the sale of 94 lots.
This brings the total from the two sales in the period to £113m which is within a whisker of the equivalent period last year, which against the wider market trends of reduced volumes is a very positive result.
One of the drivers was the good quality of particularly the London lots on offer, being sold by various Family Offices after a long period of ownership.
Whilst these long term investors are diversifying away from these holdings, the buildings were well managed, presented well and proved that at the right price point the auction process will find ready buyers to invest.
We will examine some specific examples of these sales to illustrate the point, before we look across the sectors.
The largest lot sold in the period was Bloomsbury, let to 3 office tenants at £478,095pa with parking, roof terrace and future redevelopment potential. The building comprised 12,535 sqft in total and sold for over £6,000,000 – 7.4% and £482psft.
Lot 20 October - View Lot
The buyers were new entrants into the market, and herald the return perhaps of overseas investors seeking the security and long term potential of this trophy London asset. Overseas buyers have not been seen for a while, so this could be the start of a welcome trend in our market which offers a constant supply of opportunities which are all ready to buy – this sale took two weeks to exchange.
The second example is one of a portfolio of nine assets, mostly in London, which had been offered initially as a portfolio. The sellers were a long standing multi shareholder family office style investor who originally bought well and as importantly could offer reliable and long term management information in readiness for the sale.
The nine assets were guided at £7,000,000 and sold individually for £8,006,000 in total.
The most popular was lot 21, Sushi Mania at 1257 High Road, Whetstone. In a market where buyers are wary of the leisure sector, this stood out for many reasons.
Lot 21 October - View Lot
The tenants had just re fitted the space proving their long term faith in the location which was supported by the long lease – expiring 2041. In addition, the rent at £21.45 psft £68,000pa to include the flat seemed very realistic offering the buyers the chance of an almost immediate rent increase in December 2026.
Seven buyers bid competitively on the day, driving the price from its £850,000 guide to £1,180,000, 5.4% after a sustained bidding war.
The end price was no doubt market leading, and a great credit to the sellers who bought well initially and managed this asset to the best potential, which buyers recognised.
In a market where “risk free” returns of 5.5% are available, it is useful to see where and why the pricing has been bid down to these levels and there have been other examples.
The China House, Sutton Harbour Plymouth, was sold in July, a rare combination of strong tenant in Mitchells and Butler, a long lease expiring 2114 and as importantly a ground rent geared to 20% of the open market rent. This all gives real security for the buyer who paid £700,000 an initial yield of 5.2%. The buyer was a London based Family office who have been moving away from residential for a while, securing long term income in the commercial sector.
Lot 13 July - View Lot
Convenience stores have long been the bedrock of the private investor and we continue to sell these and larger format supermarkets to a receptive audience.
During the quarter we sold 15 convenience stores, realising £12,500,000 at an average yield of over 7.05%.
The yield range is however very wide as it takes in short let and over rented stock along with newly let and fitted stores.
The two examples below were sold in July - ASDA until 2040 in Wigan at 5.7% and October – Tesco until 2041 in East Wittering at 6.6%. Two similar assets but with rates 10% higher in October this may have been the reason for the price differential.
The auction market covers all sectors – demand from buyers is strongest where the certainty and growth potential of the income is clear which often includes alternative uses.
The last example is a Vet Centre. A smaller lot and one of the most popular in the catalogue with eight buyers all registered to bid who fought hard on the day to realise £310,000 7.5% and £111psft despite the relatively short lease expiring 2029.
Lot 70 October - View Lot
1a Oppenheimer Centre, Swindon sold at £310,000
The team can provide plenty of examples across all sectors but space does not allow that in this update.
As a final point, a comment on the impact of selling upper floors to realise capital gain and create ground rents. It is clearer than ever from buyers that even these ground rents put buyers off as regulation on the Residential Landlord increases and many will not consider part sold off assets. The impact on pricing can be overdone relative to the initial yield but from Totnes to Lower Richmond Road there are clear examples of buyers opting to buy elsewhere.
In conclusion, the auction market has had a solid quarter and more recently we have been fortunate to offer some good stock which has attracted strong competition.
We have sold a total of £287,000,000 this year, which is a little ahead of last year at £269,000,000. The weaker private treaty market has helped boost our sales above £1,000,000 to 85 so far against 83 last year so another positive sign.
Looking ahead, the market is there to compete in cash, but supply and pricing are key for the last two auctions of the year.
