In commercial auctions, three things seem guaranteed to make headlines: an exceptionally high success rate, an abnormally large lot being sold or the sale of an “unusual” lot.
Fortunately, it seems the property press is now moving away from its rather puzzling interest in the latter, having learnt that the previous use of a building no matter how novel (think prisons, public conveniences, etc) is not really of that much help to the professional property investor.
As for the other two headline-makers: Acuitus’s February auction took care of the first when it achieved a 99% success rate, while Allsop sold a single lot for £7.5m.
Of course, in isolation, these stories do not mean much. They are simply manifestations of what is happening in the underlying market. To understand what is happening in the auction sector, you have to look beyond the headlines and ask what is driving these events.
While I would naturally attribute our sale’s success to the skill and expertise of the Acuitus team, it is also a reflection of just how much investor demand is out there. While the portfolio market is reportedly cooling, the private investor market has ignited.
The equity markets have started the year poorly and remain volatile while bond markets are offering very low returns. In response, investors have sent out a strong message about the attraction of commercial property. However, if you drill down further into that theme there is another story – about how investor appetite for property is also broadening.
Some of the investments we sell offer long-term secure income at attractive returns compared with bonds. Other properties offered are not such “dry” investments; they require active asset management to drive income and value.
Interestingly, buyers are now backing their ability to do this in an environment where rents have re-based and there is increasing wage growth and consumer spending. That says a lot about not just spending power but also the willingness of buyers to work assets.
The presence of large individual lots in sales is another indicator that our sector is in transition. A big one-off sale may capture a headline but it is the underlying trend that is the real measure.
At our February auction, the average sale price was up by 10% year-on-year. And the total value of the assets sold was more than twice the total sold in February 2015. The average value of assets sold at the end of last year was 8% ahead of the long-term average, while the number that sold at £1m-plus also stood ahead of the average. We expect this trend to be confirmed by analysis of the March auctions.
This is a positive shift for both vendors and investors. Very high net-worth investors and the larger property companies are looking for assets in the £2m-£7.5m-plus range, but in the past this segment of the market has struggled, falling between two pillars of the sales process.
The sales success of high-value assets will increasingly redefine the auction room as the natural sales home for such assets because of its ability to access a lot of private equity right across not only the UK but also internationally. During the coming months, we expect to see a greater number of high-value assets coming forward to the auction room. Frustrated buyers unable to place their equity into commercial real estate will welcome this, particularly as their number expands owing to rising wealth, pension changes and concerns over the fortunes of other asset classes.
While these measures will illustrate trends in the sale room, ultimately it is yields that will prove to be the most robust benchmark of what is happening. In that context, the progress of yields in 2015 makes interesting reading.
The continued strength of the London market in 2015 drove the average yield reflected by sales of assets in the capital down to 5.4%.
This is an extraordinary figure for a sales platform that is generally characterised as operating in a high-yield environment. The average prime yield across the UK fell to 6.46% and the regional yield also sharpened to 8.78% with the past 12 months witnessing a marked shift in investor interest towards assets located outside London.
In some respects, our sector is like a Russian doll: no sooner have you revealed one aspect of it than another presents itself. However, it is clear to see from the early activity in 2016 that we are entering into a new and different phase of the auctions market.
Richard Auterac is chairman and auctioneer, Acuitus
