Pri­vate in­vestors drive com­mer­cial auc­tions

The Jewish Chronicle - - JC SPECIAL - BY RICHARD AUTERAC

LAST YEAR, the con­tin­ued prob­lems of the world eq­ui­ties mar­kets saw an in­creasi n g n u m b e r o f in­vestors turn to UK prop­erty in­vest­ment. Global stock mar­kets recorded their poore s t p e r f o r mance since 2011 and en­cour­aged in­vestors to tar­get prop­erty, per­ceived as a sounder prospect.

Pri­vate in­vestors will con­tinue to be a ma­jor force in com­mer­cial prop­erty auc­tion rooms dur­ing 2016, as they ex­ploit the po­ten­tial to add value and boost cap­i­tal and in­come re­turns.

Of course, rental growth is piv­otal to the process of driv­ing in­come.

Grow­ing oc­cu­pancy in the prop­erty mar­ket, un­der­pinned by im­proved busi­ness con­fi­dence, has ex­tended well be­yond Lon­don in the lat­ter half of last year. This is driv­ing rental growth in se­lected lo­ca­tions where de­mand is high and new sup­ply is scarce.

How­ever, for many other lo­ca­tions we will have to wait a while be­fore rents nudge up from post-re­ces­sion lev­els — and beware rents agreed be­fore 2007 when rental lev­els were Auterac: plan­ning pol­icy changes have been trans­for­ma­tive higher than they are to­day in many towns out­side Lon­don.

Acui­tus’s fi­nal auc­tion of last year demon­strated the con­tin­ued growth in in­vestor de­mand, as £51 mil­lion of as­sets sold, at a suc­cess rate of 93 per cent. Of the 63 lots sold, 17 went for more than £1 mil­lion and the av­er­age yield achieved was 7.3 per cent. It was an em­phatic con­clu­sion to our 2015 auc­tion sched­ule.

In­vestors were out in force and had an ap­petite for all the sec­tors across a wide geo­graphic spread. Most prop­er­ties now be­ing of­fered in the room are from port­fo­lio break-ups, re­ceiver­ships and as­set ra­tio­nal­i­sa­tions by in­vest­ment in­sti­tu­tions and funds sell­ing their smaller prop­er­ties. Th­ese are be­ing snapped up by the grow­ing vol­ume of pri­vate in­vestors who recog­nise the con­ve­nience of hav­ing a wide choice of in­vest­ments in one cat­a­logue.

De­mand for Lon­don prop­er­ties re­mains undi­min­ished: a free­hold retail in­vest­ment on Wood Green High Road sold for £2.1 mil­lion at a yield of 5 per cent at our De­cem­ber sale. The 5,043 sq ft shop is let to Hol­land & Bar­rett un­til 2026 at a cur­rent rent of £111,200 pax. How­ever, in­vestors are also pre­pared to spend in the re­gions when the op­por­tu­nity is right. A 20,715 sq ft Gala Bingo Hall in­vest­ment in Birm­ing­ham of­fered for sale by M&G Real Es­tate sold for £1.27 mil­lion at a yield of 6.1 per cent.

A ma­jor in­flu­ence on the new­found dy­namism in the auc­tion room has been a change in the govern­ment’s plan­ning pol­icy. The Per­mit­ted De­vel­op­ment Rights régime has trans­formed the at­trac­tive­ness of count­less as­sets in the mar­ket.

The scope which PDR now pro­vides has had a trans­for­ma­tional ef­fect — par­tic­u­larly on large-scale out-of-date com­mer­cial prop­er­ties which have the po­ten­tial for con­ver­sion to res­i­den­tial use.

Look­ing ahead, the cur­rent equity mar­ket en­vi­ron­ment — bur­dened by volatil­ity and weak re­turn fore­casts — will con­tinue to make an al­ter­na­tive case for prop­erty with its “real” as­sets of­fer­ing a solid long-term in­come re­turn. We ex­pect both th­ese push and pull fac­tors to fur­ther boost pri­vate equity in­vestor de­mand for com­mer­cial prop­erty over the com­ing year.

Auc­tions have been char­ac­terised as a high-yield­ing in­vest­ment en­vi­ron­ment but the sharp­en­ing yields now be­ing achieved in the sale room are no­table.

The at­trac­tion of com­mer­cial prop­erty in­vest­ment, we be­lieve, will con­tinue for some time. It will cre­ate a very favourable mar­ket for sellers with strong com­pe­ti­tion in the room from a broad­en­ing base of in­vestors guided by their wealth man­agers and IFAs — we are work­ing closely with a num­ber of them.

We ex­pect the grow­ing mo­men­tum that we have seen in the auc­tion room since last sum­mer to con­tinue this year, as a grow­ing num­ber of sellers uses our multi-chan­nel auc­tions, which of­fer ac­cess to a huge amount of pri­vate equity, trans­par­ently and ef­fi­ciently.

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