May Commercial Property Auction Market Update

Market Busy, When The Price Is Right

The commercial market over the last couple of years has tended to be one where deals happen readily …. if the price is right. And also one where individual lots sizes (and so sales amounts) seem to be increasing apace. So did this continue to be the case in April 2024 or not?

The last Allsop sale raised £45.1m. There were some very large commercial lots at this sale –  15 of the 98 lots were offered at £1m or more. The largest single lot, a freehold town centre shopping investment in Ipswich, sold for £3.02m equating to a 32% yield. A freehold retail and development opportunity in London, W2, sold for £2.21m, while a ‘virtual freehold’ department store investment in Burton upon Trent, Staffordshire, sold for £1.83m equating to a 28% yield. At the other end of the pricing scale a freehold shop and ground rent investment in Ryde, Isle of Wight, sold for £105,000 (9.82% yield), a freehold shop and residential ground rent investment in Portslade, East Sussex, sold for £115,000 (10.34%) and a freehold pharmacy and ground rent investment in Rochester, Kent, sold for £154,000 (7.49%).

Speaking in Allsop’s latest Market Update George Walker, Partner and Auctioneer, says of the market at the moment: “Like most capital markets, the commercial auction market is down on historic volumes, but in contrast to the wider market ours is only down by

around 10%, with overall volumes to the end of February 2024 at £1.08bn against £1.2bn for the corresponding period the year before.

“The Allsop Commercial Auction team numbers for the first quarter are in line, as we have traded £115m against £135m in Q1 2023 which included portfolio sales by William Hill

and Bournemouth Council which boosted volumes.

“The wider market auction market has seen a marginal fall in lot size with an average success rate of just 70%, which is where the Allsop team differ.

“The Commercial Auction team continues to see a meaningful increase in the average lot size, from £648,000 to £859,000 this year with the success rate holding strong at a little over 85%, which compares to £351,000 and 73% across the market as a whole.”

He concludes: “These volumes show a strong appetite from buyers, and volumes will increase once sellers are prepared to trade at levels where the market provides competition, but not every seller can.”

Major commercial house Acuitus didn’t have a sale in April. However, their latest UK Commercial Property Auction Data (cPAD) Report offers an insight into the commercial auction market in 2024 so far: ‘The first quarter of the year marked a robust start for the commercial auction market, setting a record with total auction sales reaching £217m across 343 lots sold. This performance surpassed the previous peak of £193.9m achieved in Q1 2017 where 331 lots were sold, indicating a promising year to come.

Freehold Commercial, Residential and Development Opportunity in University City in Cambridge, Cambridgeshire for Sale at Auction Through Acuitus (May 2024)

‘Larger lots priced at £1m+ and above remained a dominant feature in the market, constituting 55 of the lots sold and contributing £117.1m, which represents 54% of overall sales. This trend underscores the significance of high-value transactions in driving market activity and revenue.

‘ The average lot size of £632,615 showed a slight decrease compared to previous quarters, primarily attributed to a widening of the dataset which included a greater number of sub-£250,000 lots.

‘As we saw in the backend of last year, the number of institutional owners turning to the auction room has continued over into the new year. In addition, local authorities look to be large contributors for sales in the commercial auction market, with a number of authorities looking to sell assets which have been held for decades.

‘There is still a desire to invest in commercial property for long-term hold or to use expertise to add value and then hold or trade on. Although, about 60% of UK real estate loans will need to be renewed within the next two years there is still debt available. Having said this, most acquisitions are initially made with own funds/cash and then financed at a later stage. The anticipated reduction in interest rates towards the year end should provide a boost to values and investor confidence.’

Lastly, a few interesting commercial lots from the Savills sale this month, from amongst a number of retail units, included a 10 bed care home for redevelopment in Exeter which sold for £300,000. Industrial land and units in Doncaster producing £29,460 which sold for £615,000. A freehold mixed use corner site, part vacant and part let, in Guildford which sold for £1.18m on behalf of the local authority. A vacant industrial unit in Hull sold for just £43,000.

Looking ahead, the market has been anticipating interest rate cuts will begin this month, which are likely to have an impact on the commercial sales market. It will be interesting to see if this does indeed happen in the next Bank of England announcement.