Some clouds but the mood is sunny
BREXIT UNCERTAINTY and the death of the high street are not stopping property investors from piling into auction rooms in search of bargains. As a result, auctioneers are recording good success rates, especially for commercial lots. Some residential lots are still overpriced and auctioneers expect reserves to ease slightly.
Allsop reports that unsettling highstreet headlines have contributed to an element of caution in the auction room. This has resulted in heightened price-sensitivity from the private investor. However, despite this uncertainty, there remains an abundance of cash-wealthy buyers with a healthy desire to invest and the weight of money pursuing better-quality assets is as high as ever. There is also continued appetite for larger lots —
86 lots sold for £1 million or more.
This continued demand has resulted in a hardening of yields for 10-to15-year income nationwide to sub six per cent, in from 6.8 per cent in the preceding six months, says Allsop.
George Walker, Allsop partner and auctioneer, says: “After four auctions in 2018, Allsop’s commercial auction team has raised £314 million at a success rate of 82 per cent. Conversely, and perhaps unsurprisingly, yields for short-term income have moved out, reflecting the heightened risk, continuing pressure on rental levels on some high streets and perceived uncertainty over the future of the high street in some locations. This yield gap may well widen further in the latter part of the year.
“Away from the high street, nonretail alternatives account for approximately 25 per cent of our total value this year. The pool of buyers seeking such opportunities is ever widening and we wait to see if supply can keep up with the unsatisfied demand.
“The traditional fundamentals remain unchanged but our results through the first half of the year suggest investors are placing added weight on the location of an asset and paying premium prices to reflect this.
“Value-added opportunities and future-use potential continue to appeal to our wide audience and push pricing on further. Enduring Brexit negotiations have resulted in heightened political uncertainty which cannot be ignored. For some, this may push them to adopt a wait-and-see strategy; for others, the safe haven of better-quality real assets could prove tempting.”
Staying with the commercial market, in its largest sale of the year to date, the Acuitus commercial property auction in June achieved a success rate of 80 per cent and the sale of £37.3 million of assets, as the sector adjusted positively to new market conditions.
Problems across the retail and restaurant sectors earlier this year saw the previous round of auctions experience investor uncertainty and a dip in sale rates, but the sale demonstrated how quickly buyers and sellers have adapted to the new landscape.
Richard Auterac, Acuitus auctioneer, says: “In May we talked about how we felt that the retail sector and the property market that underpins it had reached an inflexion point which clearly signalled new market conditions.
“This sale showed how the auction room can adapt to changed market dynamics and align buyer and seller expectations to create transactions.
Investors are placing added weight on location’
This sale was about the core retail assets which fuel the private investment market and it was good to see demand from across the board.”
A portfolio of ten regional HSBC banks all found buyers at prices from £415,000 to £835,000 while nine saleand-leaseback properties offered by retailer M&Co also all sold. Highest price achieved in the sale was £1.78 million for a Lloyds Bank in Clifton, Bristol. Let for 15 years from 2010 at a current rent of £100,500, it sold at a yield of 5.3 per cent.
A KFC drive-through restaurant next to a large Waitrose store in Wolverhampton was sold for £1.61 million. Currently producing income of £91,200, it sold at a yield of 5.3 per cent.
There is investor demand for properties let to national retailers with a good trading outlook, as illustrated by the sale of an Iceland store in Buxton, Derbyshire. Let until 2030 with a break in 2025 and a rent of £127,685, it went for £1.7 million at a yield of 7.0 per cent.
“The investment market generally has become more complex to predict and pricing is sensitive,” says Auterac. “A basic approach to pricing simply doesn’t work any more. We interact with a wide range of buyers and sellers across the UK on a daily basis and this enables us to give our clients the most up-to-the-moment advice on pricing.”
In the residential market, the first quarter of 2018 saw investor appetite return for London lots, despite concerns that central London residential values had cooled, reports Allsop.
In the second quarter, May’s residential auction brought to market a number of attractive residential buildings in prime locations, including a “stunning four-bedroom end-of-terrace house” in Chelsea. With sellers looking for success before the summer slowdown, the catalogue showed a large number and wide variety of lots. More than 300 properties were initially listed, making it one of the largest sales of the year.
Despite investor caution, the auction raised more than £70 million with a success rate of 80 per cent. Lots that were sensitively priced and of high quality were particularly sought after. These included many investments in London and the South East. An unbroken block of flats in Royal Tunbridge Wells achieved £3.08 million and was the largest lot sold under the hammer that day. Allsop also saw investments in the regions perform well, with a block of 10 flats in Oadby, Leicester raising £1.54 million at 5.84 per cent.
“Amid concerns about the country’s political future, the market is still determined to get business done,” says Allsop’s Gary Murphy. “While business perseveres, caution within the residential market is on the rise and getting the guide price right is proving especially critical. Opportunities presented at modest guides have done incredibly well, whereas lots priced optimistically have drawn limited attention.
“Overall, we believe 2018 will progress to be a year of correction, as different sectors of the market and regions of the country come to terms with tougher taxation and mortgage regulation, rising interest rates and political instability.
“In the short term, we are likely to see investors continue to adjust their portfolios in response to tougher market conditions this year, rather than leave the sector, particularly those with larger portfolios. So far this year landlords have mostly shown they want to stay in the game and we have seen good appetite for investment, which we anticipate will continue throughout the year, albeit with some investors seeking yield and greater capital value growth from further afield.”
Barnett Ross recorded another strong sale in July, with 88 per cent of its lots sold, bringing in £9.55 million. Star lot of the day was a substantial freehold vacant building with development potential on Westow Hill, Crystal Palace, which had been in the same ownership for 40 years. It sold for £920,000 with more than 40 applicants registering for legal documents.
Another highlight was a freehold ground-floor charity shop let to Norwood Schools, with two self-contained flats above, on Station Road, Edgware. It produces £49,460 a year. With a reserve below £700,000, it sold for £825,000, showing a gross yield of six per cent.
A freehold mid-terrace shop with self-contained three-bedroom flat above on Coney Hall, West Wickham, Kent made an even healthier gross yield of 5.9 per cent. The property is let at £22,000 a year with a reserve below £300,000. It went for £374,000.
Jonathan Ross of Barnett Ross describes it as: “another great day for the commercial market, with demand soaring for fresh stock at sensible reserves. The residential lots however did not fare as well and it is clear that a further price adjustment will be needed in order to encourage more interest in the residential at our next sale.”
Strettons’ July sale raised £6.5 million with a further £2 million under offer. The results, it says, mirrored the uncertainty and caution running through the property market and the economy generally.
Highest price of the sale was £1.1 million for three flats and an adjoining garage in Walthamstow. An array of vacant freehold houses in Ilford, Highams Park, South Ockendon, Shepherds Bush and Streatham sold individually for between £295,000 and £500,000 or an average £325,000. A two-bedroom vacant flat in Kensington guided at £770,000-£790,000 sold for £789,500 and, in contrast, a two-bedroom flat in Leytonstone let at £10,800 pa sold for £121,000.
On the commercial front, a 620 sq ft vacant commercial unit in Isleworth
guided at £190,000-£195,000 sold for £191,000 and a small unit in Grantham sold for £30,000. An interesting leasehold commercial investment in Leytonstone, let on an inclusive rent of £61,000 pa, sold for £522,000, a gross yield of 11.7 per cent against a guide of £360,000 to £370,000 and, in Dagenham, a more conventional commercial investment let to William Hill with the residential upper parts let on an AST, guided at £335,000, sold for £365,000 to show a gross yield of six per cent.
Freehold ground rents closed the day and, as usual, attracted competitive bidding, selling for significantly above guide.
“This time last year the nation was filled with political and economic instability that we hoped would have settled down,” says Philip Waterfield of Strettons. “However, 12 months on this is clearly not the case and, if anything, there is more confusion and uncertainty, which has percolated down to the property market and the auction room.”
It has been a good year for Strettons. Its February auction achieved a 91 per cent success rate. Highest price of the day was for a freehold vacant house in Notting Hill, west London, which sold for £1.77 million off a guide of £1.45 million to £1.5 million.
Strettons’ March sale surpassed the total raised at its March 2017 sale. There was strong demand for traditional auction stock, including three vacant flats in Clapton, east London, sold on behalf of a housing trust for £880,000 against a guide of £865,000 to £875,000 and a vacant house in Stepney Green, east London, which sold for £822,500 against a guide of £700,000-plus.
“As we enter the New Year and the UK departure from the European Union draws nearer, hesitation and uncertainty is likely to continue,” says Waterfield. “However, while times may be challenging, our view is that there are still opportunities within the property market for those taking a longer-term view rather than seeking an immediate return. So, all in all, a past year of change and, we think, a challenging market in the next 12 months but one which may provide different opportunities to the discerning investor.”
Barry Shaw of solicitor Solomon Taylor Shaw, which is well known to buyers and sellers in the auction market, says Brexit has changed the market insofar as there is less foreign money despite the potential currency play. “There is activity,” he says. “People want offices to work from and a home for their funds.
Both buying and selling are slow, though, as funders are slow to release funds. Stamp duty land tax rates continue to have an effect on residential investments.”
Auction House London reported an impressive set of results for July, with 427 lots sold — up 18 per cent on the same month last year. The group’s national success rate of 71.6 per cent was ahead of the market and the total raised was a healthy £54.5 million.
The award-winning brand also sold its 2,000th property of the year one month earlier than in 2017 — an endof-terrace former off-licence at 105-107 Norfolk Street in Cambridge, guided at £400,000-£450,000, but sold in the room for a staggering £795,000. The cumulative picture for the year also underlines the group’s growth, with 2,030 lots sold from 2,692 offered, at a success rate of more than 75 per cent and close to £260 million raised.
A flat in a grade II* converted Jacobean mansion in Chipping Norton, Oxfordshire sold for double its guide price through Auction House London. The third-floor, two-bedroom flat, needing total refurbishment, went for double its guide price at £180,000 in Auction House London’s July sale.
The mansion, Shipton Court, stands in beautiful communal grounds of 29 acres. It was built in 1603 by the Lacey family, who sold it in 1663. Successive owners after this made changes to the house and gardens. In the Second World War, the mansion was occupied by the army and in 1947 it was auctioned; it then remained in the same family until it was divided into apartments in 1977. The apartment now in the spotlight has 959 years unexpired on the lease.
The success rate for Auction House London was 71 per cent, raising more than £10,000,000. The TV programme
Homes under the Hammer caught the
The market has much to offer in the longer term’