Commercial Auction Market
Overview
The view from the Private investor and the Commercial Auction market is no doubt similar to most capital markets where volumes are reduced – and pricing difficult to pin down. Whilst commentators and investors alike are keen to try and spot the point at which markets at least stabilise before the inevitable upswing in demand.
Setting pricing to satisfy Vendors and meet Buyers’ aspirations is more important than ever
Amount sold in 2023
Amount sold in 2022
Put into numbers, for the year to date we have sold £309M against £442M at this point in 2022. What these numbers also prove is that there is always trading going on.
For example it was only back in April, six months ago that we sold all 53 lots for William Hill in their own auction. This completed their sales campaign that started as Truss’ Budget hit the markets, but investors responded and William Hill successfully sold all 132 lots over five auctions raising £24M in the process.
Pricing was key to that success and as these tricky times continue, setting pricing to satisfy Vendors and meet Buyers’ aspirations is more important than ever.
By comparison to the commercial market, volumes in the residential sector have increased by over 20% year on year. One of the main reasons for the difference is that commercial investors tend to have a longer term view, they will take more time to react to price changes and have less incentive to sell whilst the rents continue to be paid.
To analyse our market, at this time of the year we typically provide in depth insight into hundreds of sales. However, with such pricing disparity and reduced volumes we have chosen to explore where buyers are focusing their attention on the most popular sales, and see what we can learn.
What are buyers competing the most for in the commercial auction room?
Most of our buying community are simply deal driven. Does this deal, in this sector at this price work for me with the cash that I have in my portfolio?
The measure of the most popular lots is a simple one, we look at the number of active registered bidders on each lot and the overage generated by their competition at auction.
Let us look at the five most popular lots sold on September 19th.
The September auction sale prices were on average 14% ahead of the reserves, and if you look at these examples you can see where a good amount of that overage came from.
These were the five most popular lots sold at auction, other lots sold before and after the sale. The most striking point is that they have little if anything in common in terms of lot size or sector, the only common denominator was a willingness to get the pricing correct at the outset which encouraged the market to decide the price, in competition.
Whilst we can talk long and hard about a period of “price discovery”, in all five cases the market found the prices in two and a half weeks, or three minutes depending on how you look at it.
If you were to analyse each of these sales the pricing was very strong compared to any pricing we have seen over the last 18 months which takes us to the market before the economic catastrophe that was the Truss budget of September 2022.
Pricing at the outset is therefore key to a good outcome and where Vendors are able, pricing assets showing a clear intention to sell typically drives the price way beyond initial expectations.
Why were these lots so popular?
LOT 28
The Elms Dental Practice, Cliftonville, Northampton
No of Bidders: 13
Sale Price: £762,000
Yield: 5.6%
Overage above guide price: 138.5%
This was one of a portfolio of 10 sales, being offered by the former owners who had retained the freeholds of the surgeries when they sold the business. The assets were spread across the south of the country and caught the imagination not only of our regular investors but also local dentists as they appreciate the true worth of these sites.
This was one of the larger lots in the portfolio, so it is a little more of a surprise that demand was so strong, with 13 bidders, it was the most popular lot in the catalogue on its own self contained site with parking.
Why so popular? The modest rent offers growth potential and long lease, until 2036 gives the buyer a relatively low risk but secure income for a further 13 years.
LOT 13
Tool Station with six flats above, Lewisham High Street, London
No of Bidders: 15
Sale Price: £2,040,000
Overage above guide price: 138.5%
This was the largest lot sold under the hammer in our September saleand was sold on behalf of The City Corporation. At £2.04M it was well ahead of the guide of £1,400,000. This investment includes a trade counter, always a popular sector whether in town or out, and only one of the flats was let, giving the chance for the buyer to refurbish and let them quickly in a rising rental market.
Why so popular? Mixed use assets in London are always popular and Investors also like to buy from Institutions like the City Corporation as there is always a view that they can do better with the asset.
LOT 98
Unit 2 Whitworth Court, Gloucester
No of Bidders: 12
Sale Price: £371,000
Yield: 6.1%
Overage above guide price: 123%
Demand has returned to the industrial sector as a dozen buyers were active on this lot.
Why so popular? This is as much a function of the modest lot size, realistic rent which offered the chance to grow and that our market has been a little starved of industrial assets for the last few years as they rarely reach the open market.
LOT 92
Care Home, 17 Landsdown Drive, Northampton
No of Bidders: 11
Sale Price: £603,000
Yield: 7.5%
Overage above guide price: 150%
The key to this lot was the lease length, expiring 2052 - our market rarely sees an occupational lease for a further 29 years, and with such a strong tenant, buyers were competing for a long and resilient income stream which increases annually by RPI.
Why so popular? With this length of lease from a solid covenant, it gives investors a very long income, with annual growth built in which overcomes any nervousness about the underlying value of the real estate.
LOT 109
14 Fyfield Barrow, Walnut Tree, Milton Keynes
No of Bidders: 9
Sale Price: £276,000
Yield: 5.4%
Overage above guide price: 345%
This was one of the few Receivership sales in the auction, and had been under offer to the Freeholders of the parade for some time. As that deal fell through, Allsop were appointed and we identified a special purchaser who met strong competition at auction.
The overage at 345% looks very high, and this was partly because the initial guide price had to take account of a very restrictive head lease and no security of income for the buyer. It is always good to be proved wrong by the market and in this case a special purchaser who drove the overage at auction.
What can we learn from these examples?
These examples show our buyer pool are long on cash and each have their own criteria, which when it is met will encourage them to pay good prices when the asset works for them.
In conclusion, our October 31st auction will be a real test as we are offering a wide range of bigger assets than before, 35 are guided above £1M – the challenge is whether we and our clients have found the price point that works for investors.
