November Commercial Property Auction Market Update

Have Cash … Will Buy!

Much has happened in both politics and the economy since the beginning of October. Continued uncertainty about the direction of Government policy and a record (for recent times) rise in bank rate have undoubtedly impacted the property market. So what has happened in the commercial auctions market since our October market report?

Allsop’s commercial sale on 1 November saw 180 lots in the catalogue with around 130 sold (or withdrawn prior). Overall, over £52m was raised compared to £130m in their September sale.

George Walker, Partner and Auctioneer at Allsop, suggests that the market is still buoyant, explaining: “In the current market environment, cash remains king, making us particularly well placed to transact and creating liquidity in an otherwise cautious market.

“Despite the market uncertainty and the wait-and-see approach adopted by some investors in the aftermath of the infamous mini-Budget announcement, our team has raised a whopping £52m at our latest commercial auction – a testament to our ability to read the market and price assets in line with the expectations of our buyers, whilst ensuring the seller gets a fair price.”

The Acuitus sale on 3 November saw 41 lots with 95% sold on the day. Their auction report says that investors have a continued appetite for properties of scale which are well located and offer asset management opportunities – and that institutional quality properties are now within the reach of equity-backed investors. It suggests that the current exchange rate for sterling is attracting overseas investors.

Acuitus Chairman, Richard Auterac, points out buyers were anticipating the interest rate rise but in any case this impacts cash buyers much less. He comments: “Our analysis of commercial property auction sales through Q3 and into the November sales indicates a hardening of yields for income-producing properties which, in part, can be attributed to the majority of properties having lower rebased rents.

“Although the increases in interest rates will make finance more expensive, they will have less of an impact on investors who are acquiring assets at auction without the immediate need for debt.

“For investment funds, REITs and insolvency practitioners who are looking to liquidate assets in a timely manner, the large pool of new ‘cash-rich’ private equity investors who are buying through Acuitus auctions, are an attractive target for asset disposal strategies.”

Savills sale in early October was a mixed residential and commercial one. Ninety nine lots (80% of the catalogue) were sold and, perhaps some further indication of the current market, is that it is to be followed by two sales in November with the first offering 200+ lots.

Jeremy Lamb, Auctions Director at Savills, comments: “The auction exceeded our expectations and we certainly saw a more robust market than recent headlines might have pointed to. Those buying at auction tend to be well-capitalised and therefore less dependent on mortgages, with many sales being majority or wholly cash purchases, but despite this the result is a very encouraging indicator of the underlying strength of demand for real estate assets in the right place and offering the right opportunities.

“It was encouraging to see so many buyers reaffirming their confidence in bricks and mortar. But given the uncertain economic backdrop, it is going to be important for sellers to price well to generate good competition going forward – in auctions it’s not about where you start, but where you end!”

Overall the consensus amongst auctioneers seems to be that commercial buyers have not been adversely impacted by the current political and economic climate and the interest rate rise, and even less so when buying with cash. They are still keen to buy good quality, well located commercial property …. where the price is right.