So it is back to the old days and business as usual. Bidding on behalf of clients at Allsop’s commercial auction last month, I witnessed manic investor behaviour, as buyers fought feverishly over quality stock.
The return to form sparked by the Conservatives’ election victory unleashed a collective sense of relief among private investors who understandably place a high premium on security when buying a commercial property.
Momentum in the commercial market has certainly been gathering of late, in contrast to the residential sector, which was hit by uncertainty following Labour’s proposals over mansion tax and rent capping. Latest figures from the Essential Information Group, which tracks both sectors, showed that commercial lots offered rose to 511 in April – up by 18% on the same time last year – and 28% more sold, as 372 lots were traded.
But nonetheless, post-election the atmosphere was adrenaline charged at the UK’s leading auction rooms. No longer fettered by uncertainty over the possibility of an invasive Labour government perceived as business unfriendly, renewed confidence and vigour was surging through investors’ veins, pushing up prices and pushing down yields.
The combined performance of the UK’s two major commercial auction firms, Allsop and Acuitus, held within weeks of each other, acts as a litmus test for the rest of the market. The £111m produced between them demonstrates:
• Demand is outstripping supply for high-quality goods, specifically bank stock, especially if located in London;
• buyers are chasing covenants;
• good covenants and long leases = bidders paying over the odds = high prices;
• disappointed under-bidders – so demand is likely to continue to outstrip supply; and
• some regions remain challenging, such as stock located in Scotland.
Allsop’s bank sales showed yields of 4.5%. This was achieved on an investment let to Lloyds until 2021 located in Abbots Langley, Hertfordshire, and on a Barclays, in Cricklewood Broadway, NW2, with the upper parts let to a housing association at a rent of £93,600 and a reversion in 2017. Another bank in Barton-upon-Humber, north Lincolnshire, let until 2027, produced 5.5%.
This pattern continued at the Acuitus
auction, where a Royal Bank of Scotland branch in St Anne’s-on-Sea, Lancashire, made a 5.6% yield and two NatWest
banks in northern England hit sub-5%, one of them in Hathersage, near Sheffield, with residential uppers making 4.2% on
the investment and another in Alderley Edge, Cheshire, producing a 4.4% return.
However, there is always a good deal in the auctions for those prepared to wait for the right opportunity. A Royal Bank of Scotland branch in Walkden, Greater Manchester, leased until 2028 and with the upper parts sold off, went for £220,000 – a return of 7.1%.
Two of the largest lots also revealed different drivers for buying. The first reflecting the importance of covenant strength and the other the excitement that comes with purchasing an asset management opportunity.
The first example was a public house investment in Wolverhampton, West Midlands, let to Hops Pub Co until 2040 with a guarantee and trading as Yates at a rent of £265,000 pa. It sold for £3m, an 8.25% yield.
A second – The George Centre – was a shopping centre investment in Grantham, Lincolnshire, let to a multitude of tenants, some long, some short, producing a total income of £380,991 pa. It presented a number of asset management opportunities, selling for £2.8m (12.9%) having been guided at £950,000.
That Allsop sold four properties in excess of £2m and 17 for more than £1m and Acuitus 13 properties for more than £1m, speaks volumes about investor sentiment and funding in the current climate. For some time larger lots were not coming to auction as investors held on to stock rather than selling it, and lenders were risk averse. Their re-appearance bodes well for the next round of sales and in all sectors and most locations, the market should remain buoyant.
John Townsend is a consultant at Harold Benjamin Solicitors
