The total sales of investment-grade commercial property at auction in the second quarter of this year was almost £150m, said Acuitus chairman Richard Auterac.
Figures from the latest Commercial Property Auction Data report shows that while the Q2 volume was 16% down on Q1, it was 29% up on the 10-year average.
Average lot sizes continued to grow in Q2, reaching £735,000, which is just below the previous high achieved in 2015. Asset sales priced at more than £1m accounted for 23% of all Q2 properties sold, and cumulatively raised £87.3m – almost 60% of the total sales volume by value.
The sale of retail lots accounted for 74% of total overall activity in Q2. This was the highest level since 2019 – suggesting a renewed interest in investing into the retail sector. However, from the supply side perspective, some sellers are recognising that after a long time of trying to manage assets through a period when values have continually fallen, there are not many further levers left for them to pull. Finance is also a factor for some sellers that are highly leveraged and are coming under pressure from lenders due to loan-to-value covenants being breached. These situations can be caused by falling values, or when lenders are simply not prepared to refinance at the end of a loan.
Encouragingly for the retail sector, there is an increasing trend for local authorities across the country to bring forward strategic plans to revitalise town centres and encourage new businesses to move back into the high streets. Whether these plans focus on repurposing redundant retail space or making shopping environments more congenial, this trend is very good news for the sector – especially as retail rents looks to have reached their low watermark and this could be the start of a gradual renaissance for town centre shopping.
International investors continue to seek opportunities for sustainable income and capital value growth in the capital. Even though supply is constrained, Greater London still accounted for 28.5% of Q2 sales by value.
Elsewhere in the auction room, the attraction of ‘long lease, good covenant’ still holds true. In this vein, supermarkets, restaurants, licensed premises and petrol stations are all in demand. However, owners are reluctant to part with them unless they can reinvest the funds elsewhere.
Faced with a shortage of prime assets, some buyers are prepared to move up the risk curve, and there is continued strong interest in assets where there is potential to change the use of redundant space to residential. Indeed, we have seen an increase in the number of development opportunities being sold by auction. A transaction by auction does have benefits for both sellers and buyers providing the auctioneer, and the legal team have the skill and experience of taking a sale process that would usually take six months and turn it into a six-week timescale.
The availability of lending for residential development remains good and with many active investors being cash buyers, the recent interest rate rises are yet to have any discernible effect.
Auction yields are sharpening, with the Acuitus cPad all-property average yield hardening by 32 basis points from Q1 2022 to now stand at 7.75%. This is its lowest level since the early stages of the pandemic. For Greater London, the Acuitus cPad all-property average yield also sharpened slightly to 5.6%.
The Acuitus cPad all-property prime yield hardened to 5.77% from Q1 2022, with the Acuitus cPad all-property secondary yield following suit, down to 9.22% – its lowest level since Q2 2012.
With larger lots dominating the sector, the Acuitus cPad all-property average yield for £1m+ lots fell to 7.68% during the second quarter – also the lowest level since the start of the pandemic.
With the cost-of-living crisis continuing and increasing interest rates, we are entering uncharted waters. But for the present there is a strong core of investors that believe UK property can both generate the income returns they are targeting and maintain value during economic turbulence.
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