COMMENT While a chill wind has cooled some parts of the global real estate investment market, particularly those where activity has historically been driven by debt-backed buyers, one place that certainly hasn’t seen any decrease in enthusiasm is in the auction room.
Savills sale in mid-July raised the highest amount in the department’s history, with £78m achieved across 127 lots, including 11 lots that sold for more than £1m each. Demand was present across all sectors, with asset management, development and yield generating opportunities all selling particularly well. The latest sale in early September consolidated this strong performance, with £40m transacted – over 40% more than raised in the September 2021 auction – taking the cumulative total sold in the Savills auction room to date in 2022 to £330m.
Ballroom trends
This picture is not unique to Savills (although naturally we do say that we deliver the best hammer prices for our clients): other auction houses have also reported strong performances this year. So what do trends in the ballroom (virtual or physical) tell us about the wider property market, and specifically sentiment towards commercial-led opportunities?
The first thing to note is that bigger lot sizes are going to auction more frequently than they used to. While most commercial assets in the catalogue used to be under £3m, we now frequently see higher value assets appearing. In July’s auction 112 flats across eight apartments blocks in Bracknell sold for £17.76m, far in excess of its guide of £6m. According to EIG data, that makes it the second most expensive property ever sold in a UK auction. In June, in a sale-and-leaseback deal, a 29,000 sq ft industrial unit on a 1.2 acre site in Harlow, with construction underway on an additional two-storey industrial/office building, sold for more than £5m.
These sales are illustrative of a shift in the type of buyer now venturing into auctions. While previously perceived as the domain of the smaller, individual investor (although with some notable exceptions), a steady track record of selling bigger lots at above catalogue prices has created a virtuous circle of more well-capitalised buyers looking at auctions as a way of acquiring a decent asset at a fair price. This again has led to larger assets being listed as vendors see they can achieve pricing at a level at or above that they may have secured through a more traditional sales process.
Not only are the lots appearing at auction increasing in value but also complexity, sometimes involving planning and re-development plays that require expert navigation. But experienced buyers see the benefits of enjoying an attractive yield from an incoming-producing asset for several years (assuming the tenant offers a suitable covenant) while planning or other issues are resolved, while vendors appreciate the transparency and swift sale that the auction room can deliver.
Driving appetite
The last point is particularly relevant in a market which has experienced a series of setbacks in the last 24 months, and where many are still feeling their way and uncertain of current pricing in a market which feels like it’s changing on an almost daily basis. Utilising the auction process provides direct, fair competition and can help drive prices upwards based on the confidence present in the room or online on the day. It can also ensure an asset reaches a wider pool of buyers, rather than those pre-qualified or targeted through an off-market sale process.
They may be the “ground floor” of commercial property investment, but in an environment where it’s tempting to focus on negative headlines about UK property, the rest of the market could take something from sentiment in the auction room where both buyers and sellers remain cheerfully optimistic.
Richard Rees is managing director of Savills UK
