Commercial Auction Market
Overview
Like all transactional markets, the auction market has been waiting to see what changes the Chancellor decided to make in the first Labour Budget since 2009 and this has cast a shadow over the last few months which has now lifted.
The great thing about auctions is that they are regular. There are eight commercial auctions a year and we get immediate feedback from the market and up to date price points with every sale.
Our most recent sale on 5th November was therefore a litmus test for the market which had a week to consider the impact of any policy changes.
The 5th November auction proved to be a positive day, and those Vendors putting their faith in the process were rewarded with a good sale, setting aside the doom mongers and seeing some very positive signs. We raised £50M, which brings the total for the year to £410M which is well ahead of the £365M raised last year and the sign of increased activity to come.
Another positive point is the success rate which has improved to 86% from 83% at this point 12 months ago, which we believe will encourage more stock to come forward.
Totel Raised to date
Success Rate
Who has been selling?
The vast majority of sellers are smaller private property companies, as it has been for some time and the largest lot in the most recent auction, an office in Holborn which sold at nearly £6M was offered by a long standing private office client of the firm.
In the last two sales we have seen two REITS join the Funds that we regularly act for as they sell out of the smaller, and more management intensive assets which are better worked by local and more active investors.
Farmfoods and Heron Foods have joined Tesco as sellers, in their case both offering new 20 year leases to the market which have been incredibly popular despite some of the secondary locations, and very long term investors have been competing hard at auction to secure this long income.
Who has been buying?
We have been aware that many long-standing investors have been watching rather than buying over the last 6 months, but the last auction has seen a turning point.
Specifically with the lease-back portfolios for Heron Foods and Farmfoods, some of the registered buyers we have seen were very active over 20 years ago when they were buying the sale and leasebacks offered by many High Street banks including Barclays and HSBC.
This shows the clear demand for the secure income offered by a new 20 year lease and we think perhaps a turning point where the attraction of secure returns on cash has dwindled, as rates begin to head lower, and the appetite for the higher returns of real estate once again becomes clear.
With a good spread of industrial assets in the last auction, we felt that the clock had also been turned back a little on Lot 34 in Burton on Trent which sold at £2,710,000 and 5.8% after a long bidding war.
Some highlights from the last three months
Central London Lots
London will always prove attractive to investors and our buyer base of informed high net worth individuals rarely miss an opportunity to invest. Each will have their own ideas on the future of the building and of course price.
10 Kensington Church Street, London W8
Allsop sold this asset in Kensington after one of the longest bidding battles in the October auction. It was offered with a guide price of £2M which attracted the attention of the neighbouring owner and also a Tech Entrepeneur who had several million to invest and fought it out with the neighbour. The bidding eventually stopped at £3,005,000 / £832 per sq ft and 5.3%.
Sold in September at £3,005,000 - £832 per sq sift
New Derwent House, Holborn WC1X 8TA
This 14,227 sqft office was let on a short lease at £413,500 pa and had been on the market since the Summer with various offers failing to complete.
An auction contract was signed before the sale, ahead of the £5.5M guide price.
Retail
Heron Foods
Six lots let to Heron Foods Ltd on new 20 year leases (no breaks) with CPI linked increases.
Total Sold: £3.5485M (Avg. 8.4%)
Lot 15 - Barnsley
Supermarket with 50 space car park let to Farmfoods Ltd on a 20 year lease (no breaks) at £120,000 p.a., with fixed uplifts.
Sold: £1.75M (6.45% NIY)
Industrial
Leisure
Lot 34 - Burton-on-Trent
Industrial estate comprising 4 units totalling 29,513 sq ft, part let to Howdens Joinery. Total rents: £167,446 p.a.
Sold: £2.71M (5.8% NIY)
Lot 18 - Windsor
Restaurant let to Franco Manca until 2037 (tbo 2032) & 3 flats let on ASTs,100m from Windsor Castle. Total rents: £157,200 p.a.
Sold: £2.2M (6.75% NIY)
Industrial
Lot 34 - Burton-on-Trent
Industrial estate comprising 4 units totalling 29,513 sq ft, part let to Howdens Joinery. Total rents: £167,446 p.a.
Sold: £2.71M (5.8% NIY)
Leisure
Lot 18 - Windsor
Restaurant let to Franco Manca until 2037 (tbo 2032) & 3 flats let on ASTs,100m from Windsor Castle. Total rents: £157,200 p.a.
Sold: £2.2M (6.75% NIY)
Looking Ahead
With the recent fall in Bank of England base rate and acceptance of the Chancellor’s Budget we believe that the market will benefit from a period of stability which will see more activity across all sectors.