What will we take into 2024 from the past year?
Despite the macroeconomic conditions, however, 2023 was not a bad year at all for the auction market. At Allsop, we raised £446.5 million from the sale of 1,616 lots
Vendor analysis
Private Companies & Investors
Trusts & Funds
Housing Associations
Administrators & Receivers
We expect what will prove most attractive to buyers (and therefore vendors seeking to raise capital) is in income-producing assets and value add opportunities
The market today, it is fair to say, is not the one we might have predicted this time last year.
Following on from the end of 2022, where the market had stalled following the shockwaves sent by Liz Truss and Kwasi Kwarteng’s mini-budget, there was a hint of optimism in the air. Our February auction was one of our biggest because – having held onto assets at the end of 2022 – people felt the time was right to offload supply that had been building up.
And then interest rates started to creep up, and suddenly many investors realised we were in for tougher times ahead.
Despite the macroeconomic conditions, however, 2023 was not a bad year at all for the auction market. At Allsop, we raised £446.5 million from the sale of 1,616 lots, reflecting a success rate of 83%. This compares to £372 million from more than 1,000 sales, with an overall success rate of 80%, in 2022.
That is extraordinary given the sentiment elsewhere in the market. It’s a testament to how auctions can prove to be a safe haven for deploying capital – providing surety of sale and bypassing the sluggishness of the private treaty market. And, in fact, a lot of how the market has been shifting over the past six months gives us a strong reason to feel optimistic that, while far from plain sailing, we’ll continue to see growth in investor confidence in 2024.
Why? Because, paradoxically, of both what did happen in 2023 and of what didn’t happen but was widely expected.
What did NOT happen in 2023
Let’s start with the latter.
The wave of distressed assets hitting the market, much predicted by many, simply didn’t happen. There has been some, but fundamentally we are not in the same position as we were during the global financial crisis 15 years ago.
Banks have signed up to a charter to support people through the cost of living crisis – as they should – and there have therefore been substantially fewer loans being placed into receivership or recovery. There is a possibility that initiatives like these are kicking the can down the road, and to some extent this will be the case, but certainly not widespread.
At our sales in 2023, we did not see a substantially different seller profile. Around half of sellers were private companies and private investors, 14% or so were housing associations, a further 22% were trusts and funds, and only 12% were administrators & receivers.
This lack of distress in the market has meant that more opportunistic real estate investment strategies might not have taken off as much as they would have liked – but also that lenders can be more confident in the resilience of the market. Without widespread distress, there isn’t likely to be a significant hit to house prices.
What happened in 2023
So, what about what did happen in 2023?
With the Bank of England raising its rate month-on-month like clockwork, higher debt costs were priced in almost from the start of the year. Lenders saw which way the wind was blowing and, looking at the rates on offer in February with the rates on offer today, there isn’t a substantial shift.
Because the base rate has stayed stable for three months in a row now, there is the expectation that we have reached a plateau that is more likely to be a peak than a staging post. While some optimistically think we may see rates begin to drop in the first half of 2024, we’re much more likely to see the Bank of England begin to gradually ease them towards Q4 – but, again seeing which way the wind is blowing, lenders will offer more attractive rates much sooner.
Auction buyers tend to be cash-driven, which remains the case and is why the market remains so liquid. However, the easing of rates will further reinforce how the market adapts in the new year, giving buyers the option to buy in cash with the chance to refinance with debt at a later point. More options of how to finance acquisitions in turn leads to more acquisitions.
The opportunities for 2024
There will be opportunities across the residential property market in 2024. However, we expect what will prove most attractive to buyers (and therefore vendors seeking to raise capital) is in income-producing assets and value add opportunities.
While buy-to-let landlords might feel, reasonably, hard done-by over the past few years – between rising mortgages, tougher EPC regulations, and generally tighter regulations – the market remains deeply attractive. In London and the south east in particular, we’re still seeing capital growth. And, across the country, rental growth is still making buy-to-let a very attractive and plausible asset class.
That’s particularly true of HMOs, multi-let buildings, and small buy-to-let investments in particularly attractive towns. As across the property market, whether residential or commercial, the flight to quality remains the order of the day. There will always be demand for high quality products in excellent locations – and the capital will flock to it.
The outlook for the year ahead
2024 will be all things to all people. Some will see the stabilisation of interest rates as the certainty they need to resume deploying capital. Others will see one of the biggest years in global electoral politics and think they need to wait to see what happens. What it means either way is that there are sizeable opportunities to be had for those who can be opportunistic in their strategies – particularly for equity investors but also, increasingly, for those using debt.
With stable (and, eventually, falling) financing costs, more buyers will be in the market and, for assets priced sensibly, vendors won’t struggle to sell. The auction market will continue to be a barometer for much of the wider market – and therefore where many of the most savvy investors will be spending their time.
Richard Adamson Partner & Auctioneer
