December Commercial Property Auction Market Update

What’s Happening In Commercial Auctions As 2023 Draws To A Close…

Whether it reflects market conditions or not is hard to say, but the main commercial auction houses have not held sales since the beginning of last month (and which we have already covered in the November update). Instead, they are opting for sales in mid-December immediately pre-Christmas.

So in this report, we will take a slightly different approach and look at what the experts at the two main commercial auction houses are saying about the market at the moment.

Allsop report that they have sold 354 residential, commercial and mixed-use lots in the last four auction days raising £135m. In their recent ‘Market update with commercial focus’ podcast, auctioneers George Walker, Richard Adamson and other experts from the firm discuss the latest market conditions.

Allsop’s experts agree that the market at the moment is challenging… but are keen to stress that there is actually a market out there and that the company’s 80%+ sales rate is notable. They say that the short-lived Liz Truss ‘era’ and current interest rates are key factors in the market now.

They say that the market is a buyer’s market at the moment and that buyers form a fairly small pool, but that those buyers are keen. They say that while sellers often need and want to sell their property, very notably they can sell too. They add that significant sellers are funds and REITs who have had a property to sell for perhaps 6/7/8/9 months and are now prepared to go to auction and take what the market is offering to enable them to cash in.

Allsop say that buyers become keen once yields reach 7/8/9/10% and there is often intense competition for these lots. The experts agreed that it is significant that there are a number of large lots – £1m plus – in the market at the moment.

Allsop’s experts say that there is something of a flight to quality in terms of building and location as well as into anything that has a more productive, alternative use. They point out that buyers are nervous about office assets, largely because of what is happening in the US office market.

The experts seemed to agree that the are many more buyers out there waiting to buy, but many are just waiting for what they see as the right time.

Speaking in an article looking back at commercial sales in recent months Richard Auterac, Chairman and Auctioneer at Acuitus, reports that in the third quarter of this year the UK commercial property auction sector saw 256 lots sold for a total of £159.4m with an overall sales rate of 83%. He says that the wider market is still flat with trading opportunities few and far between. This does mean however that what is offered for sale is more likely to receive serious investor attention.

Freehold Bank and Residential Ground Rent Investment in Ledbury, Herefordshire for Sale at Auction Through Acuitus (December 2023)

As with Allsop’s experts he says that interest rates are a key factor in the commercial auctions market at the moment. Most investors are cash buyers and they are looking for significantly better returns than just sitting on the cash – anything which offers double digit returns is of most interest to auction buyers. He also agrees that higher lot values have become much more prevalent in the market of late.

Richard Auterac says that auction buyers are very cautious about investing in office property right now. Retail property has yet to ‘regain its allure’, although retail parades are popular. Industrial, trade counter and leisure appear to more attractive to auction buyers. Buyers are also more interested in lots where there are opportunities to add value but, generally, residential has more value adding potential than commercial.

In summary he says that: ‘There is still some way to go to see a wholesale correction in pricing, but this inflection point may make 2024 a good time for buyers to re-enter the market – providing finance is available.’

Looking ahead the two weeks before Christmas look like they will be very busy in commercial auction terms. As well as the two main commercial auction houses several regional auctions already have several interesting-looking commercial lots in their catalogues. So there should be much to report next month.