April Commercial Property Auction Market Update

Commercial Property Auctions Proving Resilient In Uncertain Times

The commercial property market has been facing severe headwinds over the last few months. Commercial values have been on a downswing – and considerably so in some sectors. See our report here.

In recent weeks another source of potential turbulence has emerged at a global level. The collapse of the Silicon Valley Bank and the rescue of Credit Suisse has prompted investor concerns over some banks’ exposure to this market.

In simple terms, it is an uncertain time for commercial buyers and sellers. So what, if any, impact has this made in the commercial auctions market over the last month?

Allsop’s March sale saw 82 lots sold (to date) raising £52.6m, and which included over £44m of retail property. Thirteen lots sold for £1 million+ and eight sold for £2m+. The overall success rate was 75%.

The largest lot to sell at auction was a neighbourhood parade comprising 35 shops and four maisonettes in Orpington, Kent – which was purchased for £4m+ (7.4% yield). Other sales included six out of six neighbourhood parades in Bromley sold for £9.5m, four out of four shops in Wood Green, London, sold for £6.7m+ and 27 out of 27 betting office investments let to William Hill sold for a total around £4.6m.

(Interestingly, Allsop’s next sale on 20 April is described as a single vendor ‘William Hill online sale only’. The auctioneer’s subsequent full sale is not until mid May.)

George Walker, Partner and Auctioneer at Allsop comments: “The last two weeks have thrown yet more hurdles in the way of financial markets, and whilst some investors hesitated, many carried on building their portfolios for the long-term, making their cash work for them through well-secured real estate. With the bank rate having risen to 4.25%, one would hardly expect the market to pay that for a let investment, but this is the yield we achieved for the Boots in Streatham, sold at £2.75m, to a buyer who was keen on the long-term residential upside offered by this asset.”

The last Acuitus sale at the end of March raised £16.28m in total. The headline lot comprised a High Street retail parade in Cheam, Surrey, comprising three shops and 14 flats producing total income of £160,900 and which sold for £1.93m.

Other lots included a central London restaurant sold for £1.70m (3.73% yield), a warehouse in Glasgow sold for £1.39m (8.48% yield) and another in Yeovil, Somerset, sold for £235,000 (6.4% yield).

An interesting pre-auction sale was a Burger King drive-thru in Speke, Liverpool, let on a new 20 year lease at a rent of £135,000 which sold for over £2m (6% yield). The auctioneers remarked that demand for ‘drive-thru investments’ of this type from private investors continues to be brisk.

Acuitus Chairman, Richard Auterac, says: “The auction saw competitive bidding across various commercial property sectors, ranging from High Street retail, residential conversions, and industrial assets.

“This indicates that despite the well-reported issues surrounding the overseas banking industry, the strength of demand that we saw at the beginning of the year is continuing into the second quarter. Private equity and finance are still available for a wide range of assets.”

In the West Midlands Bond Wolfe held a mixed sale in March. It raised £23m+ with a success rate of 85% and saw several sales well over their guide prices.

Key commercial lots at the sale included a former petrol station, car wash and retail unit in Cradley Heath which sold for four times the guide price at £400,000. A former children’s home in Walsall sold for £508,000, more than £200,000 above its initial guide price. A mixed retail/office investment in Solihull earning £26,500 pa in rent sold for £367,000 from a guide price of £260,000+. A social club in Cofton Hackett, south west of Birmingham, sold for £438,000 still comfortably exceeding the guide of £395,000+.

Gurpreet Bassi, Chief Executive of Bond Wolfe, describes a “gripping atmosphere at the auction, with multiple bids flying in both online and by telephone” and adds: “The success rate of 85% is well above the industry average and once again shows how there continues to be a healthy marketplace for properties, with plenty of buyers resulting in excellent prices for sellers.”

Savills also held a mixed sale in March. It raised over £43m with a success rate of 75%.

Commercial lots included two student blocks in Leicester and Derby sold for £6.8m in total. A freehold site with development potential in Hackney, London, sold for £280,000 above its £1m guide price following competitive bidding.

Nicholson Boyd, Director at Savills Auctions, says: “Our second March sale saw interest above expectation and strong bidding throughout the day. There was a noticeable increase in appetite for larger, higher value lots with several lots over £1m selling significantly in excess of their guide prices. This was evident in London and across the country. In some instances competitive offers came in before the auction and we sold two substantial student blocks in Leicester City and Derby prior which were both guided over £3m.”

In summary, times may be tricky for the commercial market but business seems to be brisk at the commercial auctions. It perhaps helps to prove that in uncertain times for any market the auctions prove an essential marketplace for both buyers and sellers alike. And one at which a level which allows transactions to go ahead can be established.