Allsop Commercial Auctions Best Performing Lots, Opportunities, Trends and More…

Below are some responses from George Walker – a partner and auctioneer at Allsop Commercial, leading property consultancy and one of the UK’s largest property auction houses.

Remember to check out our other interview with Richard Adamson (partner and residential auctioneer at Allsop Residential).

What kind of commercial lots appear to be performing the best as we move into 2024?

Buyers are increasingly seeking investment opportunities that offer stable income security, preferably through long-term leases with regular CPI or RPI increases. In addition, properties with mixed-use potential or alternative development prospects are consistently in demand, reflecting buyers’ interest in maximizing the potential value and versatility of their investments.

Lot 18, Nuffield Health, Stoke Poges is a good example of the former, a busy gym let until 2050 with annual CPI increases on a site of 4.5 acres. The guide price of £4,300,000 generated huge competition in the market and it sold at £5.71m 7.25%, on auction day February 8th.

Lot 20, a Builder’s Merchants in Bedford is not on a long lease, but the rent of £44,125 looks modest and the buyer will have the ability to carry out the rent review in September this year, which is why the lot is attracted huge  attention from buyers and it sold at £954,000 a very low 4% return in anticipation of rental growth in the short term.

What sectors within commercial are showing the most promising signs?

Clients, predominantly those with retail portfolios, are now reporting void rates below 5% for the first time in a while. In some instances, we are also seeing the emergence of rental growth, which bodes well for investor interest. Industrial properties remain consistently sought after, especially with the diversification provided by multi-let estates, presenting opportunities for achieving rental growth, aligning with investors’ preferences.

Could you highlight a few interesting recent auction sales in the commercial sector that could be of interest to our readers?

Lot 40 from the December auction was a shopping centre in Rochdale, which from over 60 lettings produced a rent of over £1,800,000pa. The sale was achieved before the auction at a price close to £5m, showing a generous yield for investors with the management expertise and resource to take on a project of this scale.

Where do you think the real opportunities lie across the commercial auction sector?

There are always numerous opportunities across the commercial auction sector, contingent upon the buyer’s risk appetite, financial requirements, and budget constraints.

The stabilisation of retail rents presents promising prospects, offering buyers the potential for higher yields over the long term.

In addition, investors who can find innovate alternative uses for secondary office spaces stand to thrive, as this sector remains relatively unexplored and holds potential for lucrative opportunities.

Which types of commercial properties are considered safer investments and, conversely, higher-risk but potentially higher-reward investments?

Assets with lower risk profiles, such as properties leased to tenants like Farmfoods and Tesco, continue to attract strong demand due to their minimal risk exposure and simplified management, appealing to certain buyers.

What are the primary risks associated with investing in commercial properties at auction and what kind of mitigation strategies could be deployed?

Our focus lies in selling income-producing assets, with the risk primarily tied to the strength of the covenant. When these assets reach the end of their lease terms, potential vacancy can lead to substantial holding costs. In such cases, expertise and advice become essential to secure a new tenant and minimise financial implications.

How is the commercial funding sector responding to current market conditions?

The market offers a very wide array of funding options, although don’t deal directly with the financing side. Rates and loan-to-value ratios for commercial assets often diverge from those in the residential market. However, there are plenty of specialists to whom buyers can turn.

Are there any geographical trends that you’re noticing?  It would be great to hear some thoughts on the London market specifically (and the micro markets within it).

Demand for commercial properties in London, particularly central London, consistently surpasses supply, driving competition and often resulting in robust market activity. For example, lot 16 in the February auction – 8-9 Lovat Lane The City EC3R – was 8,000 sq ft over lower ground, ground and four upper floors, currently multi let at £358,798pa sold at £4.26m £528psft to a private buyer who saw the potential for residential development in the medium term.

What are your thoughts on the overall macroeconomic environment and how that will influence or discourage commercial property investment?

Investors are seeking properties for both income and growth, yet growth has remained subdued for a prolonged period. Anticipating the likelihood of a new government in the autumn, many investors are proactively positioning themselves to capitalize on potential investment opportunities while other buyers may be deliberating. Our investors tend to identify opportunities early and we believe there will be ample opportunities in the evolving market landscape.

How can sellers best prepare their commercial properties for auction?

Thorough preparation is essential for achieving a successful sale at the best price. Assuming that property management is up-to-date, with all leases signed and arrears effectively managed, the next crucial step is for a competent solicitor to compile a comprehensive auction pack. Investors are drawn to auctions by a complete and transparent presentation of information. Even if certain aspects are not flawless, clarity is key.

Auction buyers appreciate sellers who facilitate quick decision-making by offering comprehensive information upfront. They may bypass opportunities if they encounter delays in obtaining clarifications from the sellers’ solicitor. As auctioneers, our role becomes more effective when we can focus on our strengths through engaging with potential buyers and encouraging them to participate by registering.