Commercial Auction Market
Overview
Most capital markets had hoped and expected 2024 to be a year of increased activity stimulated by falling interest rates.
Whilst rates did fall, the pace was slower than hoped and did not provide the hoped for boost to trade, and volumes ended the year on a par with 2023 at £461M (£462M in 2023). On top of this, the impact of the Budget on growth will take a while to comprehend, and Investors are responding with caution.
MSCI reported a drop of over 12% in the volumes of sales between £1M and £10M so on balance the auction volumes held up well relative to the rest of the market.
This relative over performance in the auction market has been driven by the ever longer marketing periods and higher failure rates in the wider market. As we have reported for some time, Vendors of bigger lots have chosen to use the speed and certainty of the unconditional auction contract more regularly which has led to a significant increase in average lot size across the year, rising to £790,000 from £609,000 in 2023.
This has become a recurring theme, year on year and the increase has been most notably in the last 12 months in London, which has made up 30% of the larger sales, a total of £80.2M increasing from 21% and £53.6M in 2023.
The buyers are happy to compete at auction and the majority of them tell us they are ready and in funds to buy more.
Totel Raised to date
Average Success Rate
"In central London we have sold lots in Grosvenor Square, Pall Mall, Shepherds Market, Holborn, Queensway, Baker Street and South Kensington to name a few of the central London lots sold in the last 12 months."
Looking Ahead to 2025
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.
