Private investors drive commercial auctions
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.