COMMENT Commentators in every capital market are teasing us, and each other, with the challenge of saying when it will be “the right time” to buy into their markets.
If you have worked in our market for as long as I have, more than 25 years, you get to appreciate that timing is a very individual thing. Put frankly, most buyers are simply deal driven. Does this deal, in this sector at this price work for me with the cash that I have in my portfolio?
There is always activity in the commercial auction market – we sell on average 55 assets per month, and have raised £390m this year to date. With such an array of lots sold, we are in the privileged position of knowing, with total certainty, which lots were the most popular at auction.
We simply look at the number of active registered bidders on each lot and the overage generated by their competition at auction. This can give an interesting insight to the market, so let’s look at the five most popular lots sold at Allsop’s 19 September commercial auction.
The sale prices were on average 14% ahead of the reserves, and if you look at these examples you can see where a good amount of that overage came from.
These were the five most popular lots sold at auction; other lots sold before and after the sale.
The most striking point is that they have little, if anything, in common in terms of lot size or sector. The only common denominator was a willingness to get the pricing correct at the outset, which encouraged the market to decide the price, in competition.
While we can talk long and hard about a period of “price discovery” in the wider market, in all five cases the market found the prices in two and a half weeks, or three minutes depending on how you look at it.
If you were to analyse each of these sales, the pricing was strong compared with any pricing we have seen over the past 18 months, which takes us back to the market before the economic catastrophe that was the Liz Truss-era mini-Budget of September 2022.
Pricing at the outset is therefore key to a good outcome, more so now than ever.
These examples show that our buyer pool is long on cash and each have their own criteria, which when met will encourage them to pay good prices when the asset works for them.
These investors would take little notice of the wider market, as they are able to make their decisions quickly, in order to build their portfolios and optimise their returns on cash.
So is now a good time to buy? Many would agree that it is always a good time to buy – buyers just need the incentive.
Why were these five lots so popular?
Lot 109 – Ladbrokes shop, Milton Keynes
The sellers, LPA Receivers, had previously agreed a sale of this betting shop, let on an expired lease to Ladbrokes, but that sale fell through so they entered it into auction. Despite a very restrictive lease, a special purchaser was identified and the auction took off. The overage, at 345%, looks very high, but special purchasers drive overage against the wider market.
Lot 13 – Tool Station with six flats above, Lewisham, London SE13
This was the largest lot sold under the hammer at £2.04m, well ahead of the guide of £1.4m, and was sold on behalf of the Corporation of London. Trade counter are always a popular sector, whether in town or out, and only one of the flats was let, giving the chance for the buyer to refurbish and let them quickly in a rising rental market. Mixed-use assets in London are always popular, with a strong letting market, and investors like to buy from institutions as there is a view that they can improve the asset.
Lot 92 – Care home, Northampton
The key to this lot was the lease length, expiring in 2052. Our market rarely sees an occupational lease for a further 29 years, and with such a strong tenant, buyers were competing for a long and resilient income stream which increases annually by the Retail Prices Index. The annual RPI growth built in overcomes any nervousness about the underlying value of the real estate.
Lot 28 – The Elms Dental Practice, Northampton
This lot, on its own self-contained site with parking, was one of a portfolio of 10 premises being offered by the former owners who had retained the freeholds of the surgeries when they sold the business. The assets caught the imagination of both regular investors and local dentists. The rental growth and long lease, until 2036, gives the buyer a relatively low-risk but secure income for a further 13 years.
Lot 98 – Unit 2, Whitworth Court, Gloucester
Demand seems to have returned to the industrial sector as a dozen buyers were active on this lot. The modest lot size, realistic rent (which offered the chance for it to grow) and the fact that our market has been a little starved of industrial assets for the past few years, as they rarely reach the open market, all contributed to the performance of this unit in the sale.
George Walker is a partner and auctioneer at Allsop
