The possibility of a Grexit and the ensuing upheaval across the eurozone has heightened investors’ thirst for a safe haven, culminating in strong prices before the break at the UK’s two leading commercial property auctions.
Allsop and Acuitus sold £125m of commercial properties between them in two days, after 190 out of 224 lots were sold, reflecting an average combined success rate of 85%. Despite the chaos of a London Underground strike, Acuitus’s 9 July auction was well attended.
As I chatted to familiar faces, I noticed with interest that many seasoned old hands, who during the last boom would delegate directors of their rapidly growing property companies to bid on their behalf, were now reverting to bidding in the room themselves.
It is often said that auctions are a bellwether for wider market sentiment. The presence of so many well-established high net worth individuals in the room, gauging the opposition and the yields being produced on the fall of the gavel, spoke volumes. They said they felt commercial and residential property in the UK offered better security than equities, which at the time of the Acuitus auction had fallen by 10% in value in just a couple of weeks, amid escalating uncertainty over the likelihood of a Grexit.
So what was finding favour? Location-wise, London continues to be a hot favourite. Sector-wise, it continues to be retail – banks are particularly popular – and residential development opportunities. So pubs, industrial lots and offices capable of being transformed are in high demand among commercial investors looking to add value.
It was interesting to see the increasing volume of larger lot sizes appearing in catalogues, as liquidity ceases to be such a problem in the commercial sector. Guided at £5m, United House in York, was the largest lot to go under the hammer at Acuitus’s sale. Comprising a freehold office building of some 43,468 sq ft, it had planning permission for conversion to 102 dwellings. I was taken aback by the amount of interest being shown in it. Acting on behalf of a potential purchaser and beaten into second place, I spoke afterwards to the winner – a Middle Eastern buyer – who intends to start converting the building immediately.
London lots of note included the first property in the Allsop sale, a freehold retail investment in Kingsbury Road, NW9, let in its entirety to a local covenant at £37,000 pa until 2024. Comprising a ground floor lock-up shop and two self-contained flats, it was guided at £550,000 and sold for £850,000, a net yield of 4.1%.
But perhaps the biggest surprise came towards the end of the sale. A freehold warehouse and office investment in Battersea, SW8, let until 2016 at a rent of £24,000 pa. Comprising just 2,559 sq ft with a small yard, it was guided at £375,000 to £400,000, and sold for £1.5m.
Meanwhile, Acuitus sold a freehold retail investment in New Kings Road, SW6, after heated bidding, for a 4.4% yield. The ground floor shop was let to Countrywide Estate Agents until 2025 at £50,000 pa, with the upper parts having been sold off on a long lease. Guided at £860,000, it sold for just over £1m.
I offered the same property back in 2005 when I was at Cushman & Wakefield. It was still let to Countrywide but at £27,000 pa, and we sold it for £525,000, with a 4.8% yield.
Outside London, Allsop produced extraordinary results on two retail investments in Morden, Surrey. One comprised two shops and two flats at a total net income of £39,500 pa. As it was only a short leasehold interest with just 15 years unexpired, it was guided at £200,000, but it sold for £540,000 – a net yield of 6.9%. The other was also held leasehold with just 15 years remaining, let to a local covenant at £37,000 pa and the upper parts were vacant. Guided at £190,000, it sold for £510,000 (a 6.8% yield on the income).
While a number of freehold bank investments were selling at yields of between 5% and 7.5%, there were two nice investments in the Acuitus sale for those prepared to speculate on renewals in the next couple of years.
The first was a prime freehold retail investment in Newport on the Isle of Wight, with a £77,000 pa income. Guided at £810,000, it made £840,000 – an 8.6% yield. The other, a £60,000 pa retail investment in Kelso, Scottish borders, was guided at £450,000 and sold for £464,000 (a 12.3% yield).
Demand remains strong for all asset classes, especially with asset management potential, underpinned by the weight of money that has recently been extracted from the pensions market.
No doubt the autumn auction calendar will be keenly anticipated.
John Townsend is a consultant and head of auction services at Harold Benjamin
