The children have written all their thank-you letters and the usual resolution has been made to do something strenuous once before Easter. I am still struggling, however, with the concept of a dry January.
I find myself, like Janus, looking two ways: forwards, trying to make an educated guess as to what might be in store for the auction market in 2016, and at the same time looking over my shoulder, trying to work out what on earth happened in 2015.
Last year’s highlights: the number of commercial lots sold at auction – up by 7%; total amount raised – down by 4%; success rates across the market – up to 86%, according to EIG. What’s that all about?
The investment market finished 2014 in a near frenzy of activity, and 2015 started with high expectations.
There was a slightly “punch drunk” feel in Q1, with stock proving slightly harder to source. The strength of demand was still clear but a number of vendors – particularly those with assets in the capital, who had experienced stellar performance – seemed to be moving into “hold” mode. With limited availability of stock, no pressure to sell and strong indicators that there was plenty of demand in the market, it made sense to many to ride the wave. Selling might be easy, but replacing the stock would be more difficult. Receivership sales, which had comprised up to a third of some auction catalogues, fell rapidly to less than 10%.
The expected flood from the break up of loan portfolios did not materialise either. There was a feeling that many of the assets coming to the market were a result of borrowers and lenders working together on a consensual basis, without appointing receivers, taking advantage of market demand to clear the decks.
The FTSE hit an all-time high in April, the election result was perceived as business-friendly and recovery was under way. The commercial auction market found itself in a kind of limbo for a while, with strong but selective demand and tighter supply than expected. “Sell in May and go away” has long been the view of many equity investors and 2015 was a classic example, the FTSE falling to levels not seen since the end of 2012. Although the external shocks of a faltering Chinese economy, tumbling oil and commodity prices and global political unrest took their toll, the appetite for UK investment property was not blunted. More than 80% of our buyers expressed a clear wish to invest again within the year, and we ended up raising £450m for our clients.
Given that commercial property is seen as a safe haven, it is hardly surprising that levels of demand in the room remain firm, particularly for the better-quality stock. Although the capital gains made over 2013-14 seem unlikely to be replicated in the short term, the canny buyer is now looking for income security as well as value-added situations.
The high street has faced a number of challenges, but there is good evidence of resilience in the sector, particularly where rents have been adjusted to market levels.
The extension of permitted development rights took a large stock of secondary office space out of the market in 2014-15. This tightened supply in the occupational market to the extent that some buyers are now looking at the office sector as a better bet than residential. This is likely to be reinforced by the recent taxation changes in the buy-to-let market.
So where does that leave us for 2016? Ongoing quantitative easing should ease some inflationary pressure into the economy – not unwelcome to the property investor. Interest rate rises will, when they eventually arrive, be modest and make little difference to returns to savers. An improvement in the availability of bank debt to the private investor will add some welcome lubrication to the system. The UK market, with its transparency, liquidity and low volatility, will continue to attract UK and overseas investors, all of which suggest sustained strong demand into the new year.
On the supply side there is still a significant volume of loan book assets held by institutional and private equity investors that are likely to come to the market. There is plenty of evidence to suggest the market is in a position to absorb this supply with ease.
Duncan Moir is a partner at Allsop
