February Commercial Property Auction Market Update

Where Is The Commercial Market Going This Year?

January is usually the closed season in the commercial auctions market. The two large commercial auction houses generally do not schedule a sale. January 2024 proved to be no exception to the rule. But that offers an opportunity for the auctioneers to reflect on both the year gone by and the year coming, and offer some thoughts on the state of the commercial auctions market right now.

In their Commercial Auction Outlook 2024 Allsop ask whether the commercial market is now sufficiently attractive for buyers to become more active, and conclude that it is. They say: ”There are signals that it is time to enjoy the prices as they are before rates and inflation come down any further and anxiety is still in the air.

“There are many reasons – mostly drawn from listening to and watching our buyers’ behaviour.

“Buyer numbers improved in the last quarter of 2023 and we have been seeing buyers we know of old emerge more recently for the better quality lots. The profile has changed from opportunists to more very long term investors, cash rich family office style portfolio buyers who are keen to build their portfolios. In nearly every case our survey shows that they have appetite to keep buying.”

Allsop believe the reasons are falling prices, increased yields, falling inflation and base rates as well as clearer patterns of demand for commercial and especially retail space. They forecast that ‘anticipated political shifts’ and the upcoming Budget may add uncertainty, but that realistic seller pricing will continue to be the real driver in the market.

They are broadly positive about commercial markets in 2024 summarising: “We believe that demand will continue to build and 2024 will see improved volumes on last year.”

Richard Auterac of Acuitus says: “January is a time for predictions but with the economic picture still unclear and a General Election now expected for the second half of the year, looking into 2024 with any certainty is not straightforward. The recent cuts in mortgage rates and some good retailer trading figures over Christmas will be of encouragement, but for commercial property investors the cost of finance remains high.

“The inflation rate fell to 4.2% in November – ahead of expectations – and it will be interesting to see if this trend can be sustained. And, of course, everyone is waiting for a cut in interest rates. The expectation has been that this would come in the summer but that may be accelerated if other key econometrics continue to improve.”

He believes that amidst this uncertainty, which may continue, the commercial property auction market has performed well, especially for assets which offer secure income or potential for conversion to residential. He believes that sales by institutional owners at prices which are accessible to private investors have been relevant in the commercial auctions market, and that interest rates for both sellers and buyers have been significant in this process.

He summarises: “In this column 12 months ago, I commented: ‘Although commercial property has come under sustained pressure in 2022 so has every aspect of the financial and economic world. The tangibility of bricks and mortar is an important investment driver for our clients and there is now the opportunity to invest at attractive yields in assets which have historically been too highly valued’.

“That message still holds good today and 2024 should see the commercial property auctions sector benefit from a certain amount of pent-up demand from investors who have remained on the sidelines until the outlook both for the UK economy and the commercial property market has become clearer.

“So, whilst we feel our way into a new phase of the cycle, my view would be that we’ll see a continuation of the greater pragmatism shown in 2023 by owners and their advisers as to where prices really are and also improved clarity as to the potential for future asset management. Coupled with more attractive finance terms and a growing pool of committed investors, this should lead to greater liquidity and a higher number of transactions.”