The auction buyers are long term investors and will seek out and compete for quality as it comes forward, with cash at the ready as they tell us on a regular basis.
Whilst yields have moved out in the last 24 months the depth of demand for the best assets will ensure that prices strengthen once rates begin to fall, and the timing of that is still not clear.
With higher than anticipated rates investors are also able to secure a risk free return approaching 5% which is tax free for the individual if invested in Gilts. These investors are clearly in cash and as we have seen in a good number of examples, will pay strong prices where they see the opportunity to add value and enhance the asset.
The Budget has made things harder to interpret looking ahead and from April most businesses will be bearing higher wage costs which will have an impact on their growth – not what the Chancellor has said that she wants.
The real impact of the Budgetary changes will of course take many months to come through, and meanwhile the Treasury’s most recent monthly compilation of forecasts suggests an average growth this year of 1.3% with the OECD higher at 1.7% which is encouraging.
Perhaps this last point is why the our Auctions continue to see a high level of new entrants at every single auction. 64% of the buyers in our December auction were new to the market. When surveyed, over 70% of these are keen to buy more and place their faith in bricks and mortar.
Therefore, we will continue to see strong demand for the best lots and yield compression will follow as rates soften and the impact of the new Government policy becomes clear and buyers are happy to compete at auction.