The value of high street retail lots sold has fallen by 4.5 percentage points in the past year, according to the latest IPD Retail Property Auction Index, reflecting a collapse in rental values and a lack of high-quality supply.
The index, launched in 1993, is compiled in conjunction with Essential Information Group and Acuitus, and represents the capital value of high street retail properties sold at auction in the UK.
Although Q4 is typically the busiest quarter for commercial auctions, the index has dropped by almost three percentage points on Q2 and stands at 84.4% of the base rate from 2003. It is down by 8.6 percentage points from the short-lived recovery in 2010.
While the new figures raise fears of impending valuation cuts, the reduction is nowhere near levels seen after the 2010 peak, when the index dropped by as much as 20 percentage points each quarter.
In the third quarter, 98 retail properties were sold through the major commercial auction houses, with a total capital value of £39m. This compares with £198m at the 2006 Q3 peak and £81m in Q3 2009.
High street retail makes up roughly 70% of commercial auctions, with most interest coming from high-net-worth UK buyers.
“While the volume sold is up on last year, if you look over the last decade this is the bottom of the cycle,” said Acuitus auctioneer Richard Auterac. “The market is highly competitive on long-lease lots in areas with good occupier demand, but we do struggle in certain towns, where occupier demand is fairly weak.”
Tenants are paying as much as double market rates, but with impending lease expiries, rental levels are expected to contract sharply. That has already hit the volume of sales and may affect capital values.
According to the IPD Monthly Shop Index of Capital Values, capital values have dropped by 1.2 percentage points since this time last year, although they have risen steadily throughout 2013.
“What has happened in the past three years is that there has been an absolute reawakening to the full extent of how far rents have collapsed in most non-prime towns,” said Auterac. “We might even see retail values on the high street decline again as the full impact of the new rents is felt.”
chris.berkin@estatesgazette.com
