Commercial Auction Market
Overview
The commercial auction market has entered a period where pricing is being reset after a busy six months post Truss.
average yields across the auctions as a whole were staying close to the 7%
Lots in Q2 2023
Lots in Q2 2022
We have previously commented that in the Autumn of 2022 when the corporate markets saw prices fall by up to 30% in the six weeks following the September Budget, our private, cash rich buyers continued to invest. The pricing changed little to earlier in the year, and in some sectors we were achieving prices set on valuations six months earlier.
This has now changed, driven by the shift in base rates giving cash investors over 5% on 2 year gilts, and at today’s rates over 4.5% for a five year term. Consumers can achieve savings rates of over 6% for smaller sums for a fixed one year bond.
This means that whilst the fundamental appetite to invest in real estate remains as we have shown by achieving sales of over £40M at our last auction, the real estate part of investors portfolios needs to work harder and deliver yields which are more compelling than these risk free alternatives.
This impact has been most pronounced in the July auction. After a strong start to the year where average yields across the auctions as a whole were staying close to the 7% long term average, the July sale, which was a relatively small sample, was sold at an average of 8.8%, 1.6% higher than the same auction in 2022. This cannot be a surprise to informed observers and commentators alike.
Allsop has a great deal of data to delve into and we will look into this in more detail when we publish our more detailed Market Review in September.
Secondary and tertiary assets are more challenging and we are looking at an increasing number of sales.
Scorex House, Bradford – a 32,640 sqft modern building, multi let to tenants including NHS Property Services at £322,415 pa sold in the July auction for close to £3M.
This example illustrates the importance of realistic pricing in a more challenging market and how the auction process can find buyers of these bigger assets.
The retail sector remains the most popular with buyers, where tenants have mostly benefitted from the rates revaluation in April giving them considerable savings on their total occupational costs.
One example from the July auction is the Iceland Supermarket in Haywards Heath, let on a very short lease at £90,000 pa which would typically limit the market’s appetite.
However, the underlying quality and trading figures were clearly obvious to the market who outbid the tenant to a price of £1.27M and 6.7% NIY as the hammer fell.
These examples show that buyers will continue to bid competitively for the better quality assets, but a good understanding of each town, the sector and underlying value is essential to achieve a sale.
Offices seem to be attracting some very negative headlines, outside the very prime where occupational demand from tenants for the very best stock is driving rental values.
The last point worth noting is the change in sales levels compared to the Residential sector in the last 12 months.
With many more amateur buyers in the residential sector and possible lower but floating borrowing rates, the amount of stock being offered is 32% compared to last year. However revenues are just 21%. Pricing still clearly needs to adjust to reflect the increased volumes.
In the commercial sector, the last available figures show a 4.1% drop in lots offered to May 2023, and sales revenues also down by 8.6%.
Iceland, Haywards Heath
Let on a very short lease at £90,000 pa which would typically limit the market’s appetite.
Scorex House, Bradford
A 32,640 sqft modern building, multi let to tenants including NHS Property Services at £322,415 pa sold in the July auction for close to the £3-£3.25M guide price.
Direction of Travel
Looking ahead, to deliver sales in this tricky market will place further reliance on market knowledge and the experience required to interpret all the data around each asset and its potential buyer.
Having sold £499M in the last 12 months, Allsop’s commercial auction team know who the active buyers are and we have the data and experience to achieve sales.