Auction success rate hits lowest level in three years

The number of commercial lots brought to the auction room in Q1 was up 20% year on year, but the overall auction success rate dropped to 84.2% – the lowest in three years. The latest Acuitus cPad report, which uses sales data from Essential Information Group, shows the impact of the Bank of England base rate and the troubles of Silicon Valley Bank, and other US banks, on auction buyers and sellers. Some decisions to sell were postponed and the ability of some assets to find “special buyers” at enhanced prices was temporarily halted, said Acuitus chairman Richard Auterac. Some 287 lots were sold at auction for a total of £175m in Q1 2023, continuing the post-pandemic trend of more even activity distributed across the year (see graph, below). This was in line with the previous year’s Q1 figures of £177.5m raised from 260 lots, but significantly above the 10-year Q1 average of £150m. Average lot sizes continued to ease back slightly, falling to just under £610,000, although this was largely due to a fall in the average lot size of properties sold outside Greater London. Average auction yields in Q1 remained stable at 7.42%, having been 7.41% in Q4 2022. Prime yields moved out to 6.06%, while secondary yields moved in slightly to 9.38%. London focus During Q1, 42% of the lots sold by value were in Greater London – the highest proportion of total sales since 2011. Demand for properties across the capital remains strong and prices are holding firm. The average Q1 sale price of London properties was £1.11m. “Given the depth of buying power for London assets, we expect there to be an increase in average lot sizes as sellers capitalise on the depth of investor demand,” Auterac said. Notable London lots sold in Q1 included Aldersgate House at 135-137 Aldersgate Street, EC1, which sold for £1.46m at a yield of 4.61% in February. Resi drives retail demand Demand for retail assets in Q1 was strong, accounting for 67% of Q1 lots sold by value. This was ahead of the previous year’s 58%. Residential development potential, alongside current retail income, remained a key driver. Examples include a high street retail parade in the London commuter town of Cheam, producing £160,900 in rent, which sold for £1.93m. The parade consists of three retail units and residential ground rent from 14 flats on the upper floors. A central London restaurant on Old Brompton Road, which sold for £1.706m at a yield of 3.73%, has reconfiguration and refurbishment potential. Retail rents have dropped dramatically over the past five years to sensibly priced and generally affordable levels. However, Auterac said investors are still cautious towards high street investments where historical rents are high – and this is reflected in higher yields. Leisure investments continue to be popular, despite post-pandemic trading difficulties for pubs and restaurants, because leases tend to be longer than the standard shop lease and often have RPI-linked rental uplifts. However, strength of occupier covenant is still an important factor. Out-of-town drive-thru restaurants and coffee shops remain very popular because they tend to be in good roadside positions and are let on long leases to well-known operators. An example in Liverpool, let on a new 20-year lease at a rent of £135,000, sold for more than £2m at a yield of around 6%. Industrial prices firm Private investor demand for multi-let industrial estates and well-let industrial investments continues to exceed supply, resulting in prices remaining firm. Auterac said this area of the market had shown a different pattern to the logistics and big box sector targeted so heavily by institutions and investment funds in 2021 and the first half of 2022 – driving yields down ahead of a fall in valuations at the end of last year. “The private investor has not had the same opportunity to invest in industrial because the supply of suitable assets through the auction market has been limited,” Auterac said. “The rise in values seen in the institutional market did not manifest itself to the same extent in the private investor market.” To send feedback, e-mail julia.cahill@eg.co.uk or tweet @EGJuliaC or @EGPropertyNews