Is secondary the new prime?
Bidders’ 2020 vision focuses on added value
AS THE glass, steel and concrete shine out of glossy property brochures designed for glossy institutional investors, you would be forgiven for thinking prime property is where the money is. The auctions market is where property gets real — and the word from the coalface is that buyers are going off prime investments and buying secondary instead.
Jonathan Ross at Barnett Ross will not go as far as saying out loud that “secondary is the new prime”. He says: “It will never be termed that. But ask our investors if they would prefer a £1 million New Look or a £250,000 investment let to a Specsavers or charity shop, they would choose the Specsavers and the charity shop.”
Sam Kinloch, of auctioneer Clive Emson, agrees. It had a retail investment in Sutton in a recent sale, a secondary property producing £15,600 a year, guided at £150,000 to £160,000, which sold for £272,000. Kinloch says: “What we consider blue-chip investments aren’t doing so well and the bits and pieces on secondary parades are doing a lot better.”
Ross adds: “Some of the prices still being paid for the smaller retail investments are amazing. High-street retail is suffering massively, but you have to remember that the majority of it still includes multiples occupying larger units. [Buyers] are coming away from that prime high-street market and focusing on cafés, nail bars and charity shops. Takeaways and restaurants are still popular. They are the secure tenant you can’t get on the internet.”
The exception is betting shops. “For many years, they were the tenant darling of the property investors but now the government has turned on them,” says Ross. “Bookies are now requesting a 25 to 50 per cent discount on rents.”
The rise of secondary retail is one trend coming out of 2019, which all auctioneers agree was an “interesting” year, with more than the usual number of lows among the highs.
“Everything conspired in 2019,” says Ross. “There was the behaviour of the property market generally. When people have an excuse to do nothing, they take that, while others see it as an opportunity to move. We had a surge of new buyers and rooms were packed with different faces. Prices seemed to hold up for stock we could get hold of. But it was also another year of being selective on the type of property we were taking on.
“It’s lovely to have a big catalogue, but you don’t want a 90 per cent sale,
The focus is on cafés, nail bars and charity shops’
so we avoided that with smaller catalogues and averaged a 92 per cent sales success.” As with most auction houses, December was a tough sale for Barnett Ross, with success at 80 per cent. The October auction went well. Highlights included a freehold in Willesden, NW10, comprising two vacant shops plus three flats let on ASTs producing £38,480 a year, which sold, by order of administrators, for £1.3 million — the most expensive lot of the auction.
It also sold a unit at 375 Kensington High Street, let to Jones Lang Lasalle, once itself a giant of the auctions market. Producing £37,500 a year, it went for £700,000, a 5.35 per cent yield.
Acuitus, staffed by the remains of the former JLL auction team, ended 2019 with a 90 per cent average success. The last Acuitus commercial property auction of 2019 raised £21.21 million, with an average lot size of over £800,000. Acuitus auctioneer, Richard Auterac, says: “Our first auction of the year was held amid huge uncertainty ahead of the expected March Brexit deadline and our final sale was the day before the general election, so this success rate is testament to both the quality of assets we brought into the room and the depth of investor demand.”
Notable lots at the December auction included the £685,000 sale of the Goldsmiths’ Company assay office in London’s Hatton Garden at a yield of 4.72 per cent and the sale of a retail park in Glasgow for £1.255 million at a yield of 6.44 per cent. Highest price achieved was the £2.25 million for a prominent Salisbury freehold restaurant, shop and office investment with development potential. Auterac says: “There is investor demand right across the spectrum of property sectors and all geographic locations and that means tremendous opportunities for sellers as well as buyers”.
Allsop’s December commercial sale raised £43 million with an 83 per cent success rate. Some 84 properties went under the hammer. On the day, 12 sold for more than £1 million. The largest investment, a parade of shops in Pitsea, Essex, sold for £4.56 million, well ahead of its £4 million guide, reflecting the strong demand for long-term, addedvalue opportunities cited by Ross.
This was also evident in the sale of a town centre retail parade in Grays,
Essex. The investment attracted stiff competition on the day, achieving £1.75 million, £350,000 ahead of guide.
Lower-yielding assets in upmarket areas also attracted investors. A Caffe Nero and maisonette in a picturesque Cotswolds building sold for £1.01 million. There was also demand for investments in the office sector, including Churchfield Court, Barnsley, which had been on the market for some time. Mostly let to Legal and General with some vacant space, it sold for £1.62 million, at £58 per sq ft.
Alternative assets retained their popularity among investors, with a Travelodge in Sutton Coldfield selling above its guide of £2.5 million at better than six per cent. Other highlights included a convenience store in Neath, Wales, sold to a buyer on a boat in Antigua for £835,000, giving a yield of 5.6 per cent.
George Walker, partner and auctioneer at Allsop, who blogs on the Allsop website, says: “December’s commercial auction was one of the busiest for some years, with strong competition, reflected in the high success rate. Buyers are taking a view beyond the current political turbulence and this is driving demand for assets offering long-term opportunity to add value.”
With an election in the offing and Brexit still possibly unsettled, many auctioneers dreaded their December
There is demand for assets with potential to add value’
sale. Gary Murphy, at Allsop Residential, says the outcome for him was better than hoped. “Despite a modestly sized catalogue (219 lots), the ballroom was crowded from the start,” he says. “By 6.30pm, the hammer fell on the final lot, bringing the sales total to £46 million, with 83 per cent of all lots offered successfully sold. This sale was on a completely different scale to any we have experienced for a while. For most of this year, we have really had to work the bidding in the room. Sales percentages and totals have been respectable but it has been challenging.
The wind has changed. Competition was keen and determined. Lots took longer to sell as a result and prices are improving. Properties sold well that would not have gone in October, in my view; 2020 looks very promising now.”
All auctioneers are looking at 2020 with renewed hope. At Clive Emson, Kinloch hopes to build on a market where commercial looks like it will do well and, in the residential market, anything with potential to add value sells well, too. “The market for properties in good condition that suit owneroccupiers seemed to drop off in the middle of 2019,” he says.
Clive Emson runs live and online auctions for properties for sale throughout the UK, including residential, countryside, land, commercial and agricultural property. Among lots sold at its December sale is the Café at the Oaks, Manston, which it offered complete with an inventory including tables, chairs, counter and kitchen facilities. It sold for the top of its guide range, at £105,000.
At Savills’ December sale, the room was full. “There was a sense people were committed to trade,” says Savills’ Chris Coleman-Smith. “Over the past few months, some buyers have seen opportunity in the uncertainty while others held back, but what was clear from this sale was that there were buyers who simply wanted to get back to business and transact. This sale was in fact one of our strongest success rates all year and several high-value lots got over the line — three received competitive bids and sold for around the million mark. We knew it was essential to offer a catalogue with widespread appeal and that helped to bring in buyers who might have otherwise opted to wait until the New Year. To close 2019 with this kind of result is encouraging; we saw strong activity at all levels of the market and regionally, too.”
Savills sold 7 Clapton Square, guided at £950,000-plus, for £995,000; a property in Ealing, guided at £800,000plus, for £1.245 million and a property in Southfields, guided at £800,000, for £910,000.
James McHugh of McHugh & Co is expecting a busy start to the new year. “We had a good year in 2019,” he says. “And 2020 looks like it could be better. The election and new certainty about Brexit means people have the appetite
People are ready to come back and transact’
to buy. We are being selective about what we take in. You have to price it right. There is property on the market that’s not selling. When putting property into an auction, they have to be realistic with reserves.”
Among properties in its February 24 catalogue, McHugh is selling 811 Green Lanes, Winchmore Hill, N21. The double-fronted semi-detached property, with two floors previously used as offices, has development potential, subject to planning consent. Guide price is £500,000-plus.
In Cockfosters Road, EN4, it is offering a three-bedroom purpose-built upper maisonette on two floors and a lock-up garage, all requiring modernisation, at a guide of £325,000-plus.
Strettons’ December auction raised £11 million, achieving 77 per cent success. Highest price in the room was for a freehold vacant double-fronted period property on historic Cable Street in
Stepney, E1, sold for £1.54 million off a guide of £925,000 plus.
There was strong demand for wellpriced vacant residential lots with modernisation and development potential. The first lot of the day, an end-of-terrace four-bedroom house, with outbuildings and workshop area and planning permission for two houses, in Walthamstow, E17, sold for £706,000 (guide: £475,000-£500,000).
In Forest Gate, E7, a freehold vacant house for repair/improvement, with planning permission for a loft conversion, guided at £400,000, sold for £440,000, while in Romford, Essex, a freehold vacant house with development potential also sold for £40,000 above its £400,000 guide price.
On The Broadway in Mill Hill, NW7, a double-fronted building (a former bank, two flats, and ground rents sold on behalf of HSBC) raised £825,000.
Commercial sales included two adjoining properties in Manor Park, E12, one a freehold commercial/residential investment and the other a freehold commercial investment, advertising hoarding and vacant maisonette. They sold for £588,000 and £528,000 respectively, both over £50,000 above the guide price.
A selection of freehold vacant land sales closed the auction, most notable of which was the site of a former electricity substation in Salisbury, Wiltshire, selling for £162,000.
So, on a day when the nation went to the polls, the December auction ended the year on a high note for Strettons.
Just ahead of the election, buyers at Auction House London’s sale bid with renewed enthusiasm, says auctioneer Andrew Binstock. A three-bedroom terraced property in Guildford, Surrey, needing modernisation, started with a guide of £225,000 and sold for £320,000. Binstock adds: “There was a definite buzz to our December sale and the feelgood factor from buyers is returning. Now having moved on from the general election, investors are keen to get stuck into more projects.”
A first-floor two-bedroom flat in Mitcham, Surrey, with just 16 years left on the lease, started with a guide of £60,000 and sold for £115,000.
Binstock says: “This was a great auction to end a good year. The room was busy and optimistic and, despite concerns there would be a huge dip in sales in 2019 with the political uncertainty, it hasn’t happened. It has been business as usual, with an average of 80 per cent of properties sold throughout the year. And 2020 is looking even better.”
The online property auction market is small but growing and it weathered the storms of Brexit and election that beset the property market in 2019. Max Mason, of Lambert Smith Hampton’s auction brand, 574, says online auctions are a way to iron out the creases of the 2019 market. “It’s no secret that uncertainty affected the market in 2019,” he says. “Auction success rates fell. Online, the market is the same, no matter what method of sale you use. The difference is, we do not subscribe to the same timeline that traditional auction houses use.”
One advantage, says Mason, is the improved market intelligence online auctions can provide. “There are a lot of buyers out there who say: ‘Let me know if it doesn’t sell’ — and then they make an offer. One area where online has as an advantage is we know who is actively looking. In a ballroom, you don’t know in the same way. You only have an idea.
“On some of our unsold lots that end up selling post, we are in receipt of an offer within an hour of the auction closing and then we will receive one
Online, we know who is actively looking at a property’
or two more. There are multiple situations where we sold the property after the auction for above the reserve. One property like this, which had interest from more than 40 people, beat the reserve by 76 per cent.
Properties that do go “on the day” can do well, says 574. Mason is proud of 42-46 Teville Road, Worthing. It was guided at £250,000 with a reserve of £250,000 and sold at £476,000, 90 per cent above. It had 102 bids from five bidders out of 38 interested parties, with 32 legal pack downloads and 1,168 views of its page on 574’s website.
“There is a vulturish attitude at the moment. Some buyers think they can pick up properties cheaply. This reticence in the market has led to them paying more than they would have in the auction,” says Mason.
BidX1, formerly Andrews & Robertson, starts its next online auction on February 18. Among highlights is a freehold retail investment in Leeds, let to Boots until 2022. The 26,000 sq ft property produces £173,000 a year and guide price is £1.1 million.
Online auctions via BidX1 are picking up speed. It recently sold a house in London for £1.4 million. The platform is half way between 574’s ad hoc style of auction, where each property has its own auction online, and the ballroom idea of most auction houses, where there is a limited time to buy many properties from a single catalogue. BidX1 recently won best PropTech Innovation at the annual KPMG/Irish Independent Property Awards.
BidX1 sells properties all over the world. Founder and CEO Stephen McCarthy says: “In Spain there was a strong range of properties from Madrid to Barcelona and the Balearic Islands on offer. The highlight saw a UK bidder buying a property in Alicante while he was in New York, conditionally purchasing the property using his mobile device. This proves the platform’s flexibility.”
BidX1’s December sale of South African properties saw competitive bidding, with a total of 173 bids for the 31 properties, selling more than 60 per cent of them on the day. Three “frail care centres” in Cape Town’s Northern Suburbs achieved brisk bidding — one in Welgelegen going for R5.5 million (pushed up from an opening bid of R2 million); one in Durbanville achieved R4.7 million (opening bid, R2 million) and one in Sonstraal Heights fetched R2.2 million (opening bid, R2 million).
McCarthy says: “This is a hugely exciting time for BidX1, with our proprietary platform and wide range of in-house industry expertise delivering a differentiated proposition to the market, enabling us to broaden our global footprint.”