The accelerated disposal of property prompted by the temporary changes to permitted development rights played a significant part in boosting sales volumes last year.
The volume of lots sold in terms of capital value at our national London and Belfast auctions increased by more than 100% from the previous year, with an average success rate of 89% across both sales.
Buildings with an angle have always been popular at auction. Those assets with a capital value of up to around £3m can be very attractive to cash buyers such as property companies and entrepreneurial investors who are prepared to speculate on longer- term intrinsic value with an informed view, but without the constraints of a larger corporation.
Almost on a daily basis for the past few years we have read in the press about the housing shortage and the need for the release of land and buildings so that developers can start building and increase much-needed supply.
During this same period, especially in our last two auction sales, we have seen a significant increase in the number of assets with potential for conversion to residential, particularly from our corporate client base.
Indeed, the largest lot with development potential that sold in the last auction was a mixed-use building in Slough town centre, one of the towns that will benefit from the introduction of Crossrail in 2018.
We sold the asset on behalf of a major UK fund to a private property company for £2.85m.
However, in the run up to the dissolution of parliament at the end of March, the extension of permitted development rights from office (B1) to residential (C3) appeared still to be under consultation. It is rumoured that the extension will not be happening and that the conversion rules will expire in May next year.
This is likely to have an impact on auction activity by increasing the risk to property speculators who might have previously been more keen to bid up to a price that would have encouraged a landlord to sell.
But while the door may have closed on one set of PDR, others have opened that could provide new opportunities in the market. Interestingly, one new piece of legislation means that from 15 April there will be new permitted development rights for storage and distribution buildings (B8) up to 500 sq m for change of use to C3.
Some of these buildings may be more difficult to convert as the new PDR laws don’t allow for the demolition of the asset, but I suspect this new legislation and the opportunity for alternative use will give some developers the confidence to work up a more formal, comprehensive scheme outside of the remit of PDR legislation, so in effect this new legislation will give them a foot in the door with the local planning authority.
Although we have noticed improvement in the regions in the past 12 months, some of these older, more tired buildings, especially those in weaker fringe locations, have been the most difficult to sell, due mainly to falling rents, a complete lack of tenant demand and the risk and cost associated with holding these assets.
Let’s face it, most developers are less interested in the physical aesthetics of a building; they simply want to make a purchase with the least amount of risk in order to make as much profit as possible. Industrial buildings have only ever made up a small percentage of the number of lots offered at auction, but I suspect this change in policy could encourage more stock to the market.
Two of the key sectors likely to be motivated to sell stock over the next few years are the public sector and the banks and receivers, with whom Lambert Smith Hampton is working closely following our recent acquisition of ES Group.
As a business we also hope to be involved in the delivery of these new homes, from planning right through to sales, through the estate agency network owned by our parent Countrywide.
If landlords continue the accelerated disposal of surplus assets over the next 12 months, the signs are again positive for the commercial auction market too.
Oliver Childs is head of auctions at Lambert Smith Hampton
