September Commercial Property Auction Market Update

The Market Pauses For Breath

If the residential auction market slows over the summer holidays then the commercial market is even slower with very few properties being brought to the market this month. However, that gives the commercial auctioneers time to pause for thought and report on what the market is doing at the moment. This month, we’ll take in some of their thoughts.

Allsop didn’t hold a commercial sale in August with their next sale being on 19 September. However, in reviewing the market at the moment George Walker, Partner, reports: “It doesn’t take a degree in economics to understand that the past year has not been one that many in the real estate industry will have found lucrative. While far different to what we saw in 2008, today’s property market is riddled with challenges and uncertainties which create an environment that’s anything but conducive to deal making.”

But he explains: “Our market hasn’t stalled – in the past 12 months Allsop sold a total of 1,976 lots via auction. There has, however, been some meaningful price correction recently.”

He adds: “Both residential and commercial markets have seen their fair share of challenges. For the former, the rise of BoE’s interest rate to 5.25% has meant sluggish property price growth due to subdued demand, which has brought the importance of yields to the forefront. In the past, investors could afford to accept low yields knowing that they would get guaranteed capital growth but in the current environment, yield is more important than ever before.

“In the commercial sector, retail yields were running close to their long-term average of 7% until May, kept low by a large portfolio of small William Hill leasebacks and buyers’ renewed enthusiasm for high street retail, driven by the business rates revaluation. Yields have since drifted significantly higher, creating an attractive yield gap which drives investors to real estate.”

As to what’s selling right now George Walker summarises: “Commercial properties with value-add potential always perform well, which is typically driven by higher values for upper floors offering residential accommodation.”

Likewise Acuitus didn’t hold a sale in August. Their next sale is on 21 September, for which there is already a weighty catalogue of 62 lots. However, the recent Acuitus Commercial Property Auction Data (cPad) report shows that the second quarter of 2023 saw 239 lots sell at auction for a total of £116.9m.

Chairman and auctioneer Richard Auterac comments: “The results for the second quarter of 2023 remained close to the long term average but with a significant increase in the success rate from 84% in the previous quarter to 92%. The hot spot for this quarter was the proportion of properties located in Greater London which was up from 20% to 31% of the properties sold by value.”

The cPad All-Property prime yield and secondary yield have remained largely unchanged, with prime at 6.02% and secondary at 9.42%.

Those auctions who did offer commercial properties returned mixed results, perhaps showing the volatility of the market at the moment:

Pugh, part of Eddisons, held a mixed sale in August. Some of the commercial lots included the 5,000 sq.ft. former community centre in Shavington, Crewe, which surpassed its £150,00 guide price and sold for an impressive £251,000. A mixed use property in Barnsley, South Yorkshire sold for £155,000. A former training centre in Dronfield, Derbyshire, sold for £116,500. A prominent town centre office building in Rochdale, Greater Manchester, went unsold after being offered at £225,000. The sale of a garage site investment in Blackpool, Lancashire, was postponed.

At Auction Estates Iron Gate Studios in Derby sold for £22,000 from a guide of £20,000. The sale comprised an income producing head lease secured against 12 residential units producing an income of £3,600 pa – offering the new owner a 16.4% yield. In Nottingham a substantial freehold commercial unit comprising a warehouse and office measuring 6,615 sq.ft. achieved £380,000 – almost 20% over its guide of £325,000. Several other commercial lots sold prior or post auction.

With the two large commercial auction houses both holding a sale at the end of this month and numerous smaller sales October’s update should be action packed – and give us a very clear idea of what’s going on in the commercial property market in 2023.