More than 120 private investors assembled in central London for Prideview Group’s annual Autumn Market Review on 9 October.
Some 40% of attendees were completely new to the world of commercial property investment – busy professionals and entrepreneurs who are considering their options in today’s low-interest but uncertain climate, as well as numerous residential buy-to-let investors looking to make the switch to commercial. The event was also streamed online on Facebook Live.
We were joined by Richard Auterac, chairman, and David Margolis, investment director, from auction house Acuitus, who began by looking at recent auction sale rates. These have fluctuated, sometimes considerably, around the 80% level, demonstrating the current sensitivity of investors to wider political events on any given day.
Looking at historic yields they explained that prime (lower quartile) yields continue to remain firm around the 5% mark while the ‘yield gap’ with riskier (upper quartile) properties, where 10% yields are common, is near an all-time high.
These higher yields are certainly tempting investors in the auction room. However, for the risk-averse the focus has moved away from high street retail to more compelling sectors such as convenience, medical, restaurants and industrial.
At Prideview, we have been seeing the following sectors become increasingly popular with investors in 2018:
Convenience
Convenience retail continues to perform well as shopping habits change and convenience store product offerings widen to fresh foods and ready meals.
Recent examples include:
- An attractive Co-op Food in Peterborough, let on a new 15-year lease. Co-op Food were relocating an existing business into this large site, which gave the buyer additional comfort that the new unit would perform well and he acquired it off-market for £1.2m, a 5.7% yield
- A Tesco Express in Wales with a shorter, eight-year lease, was bought off-market for a better yield for £810,000, a 6.8% yield by an investor from the region
- A new parade in Burton-on-Trent which includes a Co-op Food on a 12-year lease with four other tenants, which was bought for £1.775m, a 6.9% yield, for a private cash buyer
Medical
The medical proposition is one we all empathise with, even more so given our ageing population. Doctors, dentists, pharmacies, health centres, funeral parlours, vets, opticians and cosmetic salons all fit in this category.
Examples in this category include:
- A dental practice let to My Dentist (a blue-chip operator) in Norfolk on a lease with a break in one and a half years – it sold in auction for £245,000, a 5.7% yield
- A Boots pharmacy with a four and a half-year lease in a busy Birmingham suburb sold for £190,000, a 6.6% yield
- At the higher end of the market, an NHS office and skin clinic in Harrow, let on a 10-year lease, was bought off-market for £2.6m, a 5.5% yield for a medical fund
Restaurants and pubs
This sector has performed well as it is complimentary rather than contradictory to the internet – apps like Just Eat and Deliveroo are helping many restaurants increase their reach and sales.
Arguably the greatest covenant of them all, McDonald’s, is the perfect example of this sector, and the Leicester town centre branch which is let for another 18 years was acquired by one of The Prideview Group’s medical clients in auction for around £2.5m, a 4.5% yield.
Pub sites often appeal due to their conversion / redevelopment potential, a seen with the recent off-market purchase of a pub on a large site in Southgate on a six-year lease by a local developer for £1.8m, a 4.8% yield.
What is your risk appetite in the current climate?
Almost half of investors (47%) wanted a blue-chip investment with a 10-year plus lease. From our list, they selected either the McDondald’s in Leicester (27.9%) or Co-op in Peterborough (18.6%).
But the deal that was most popular was the parade anchored by Co-op Food in Burton-on-Trent (31%) (pictured, above), implying that while investors need some security in a blue-chip covenant they are also keen to enjoy the yields available on units let to independents. Who says you can’t have it all?
Nilesh Patel is a director and Pritesh Patel a consultant at consultancy Prideview Group
This article appears in the November edition of EG’s Property Auction Buyers’ Guide, out on 24 November
