Allsop reports commercial auction market resilience and scramble for quality assets despite High Street woes

Allsop reports in its Commercial Auctions Summer Review 2018, an analysis of its commercial property auctions for the first half of this year, that the commercial property market remained resilient despite news of High Street woes and ongoing BREXIT uncertainty.

However, the market was more cautious with increasing demand for high-quality lots which have resulted in hardening of yields and in investors purchasing locally rather than venturing further afield.

Commercial auction market activity for the first half of 2018 was only slightly less than the first half of last year with 523 properties sold in H1 2018 compared with 562 properties sold in H1 2017 with the value of sales being £320.5 million for H1 2018 against £357.76 million in H1 2017. The success rate for H1 2018 at 82% was only slightly down on H1 2017 at 86%.

Investors as a whole are turning to quality, resulting in the yields of high-quality lots, those in good location with secure tenants let at market rates, hardening from 5.77% to 5.65%. In contrast, yields for B-grade assets softened from 8% to 8.5%.

Concerning regions, investor demand remained focused on London and the South East with yields of some of the best lots down to 3.5%.

Retail remained the dominant sector, comprising 72% of the total auction sales value or £229 million against 67% the previous year.

Investors are tending more to invest locally rather than venture further afield with local investors making local purchases increasing from 36% in 2017 to 45% in 2018.

However, the survey further reinforces market optimism with 89% of buyers intending to purchase another commercial property in the next 12 months compared to 80% in H1 of 2017. There is also increasing demand for larger lot sizes with 37% of buyers looking to invest £1 million plus in any single property against 27% last year. This might reflect the increasing volume of larger lots at auction. Demand for mid-size lots remained strong with 57% of investors seeking to purchase lot sizes from £250,000 to £1 million.

George Walker, Partner and Auctioneer, said: “Investors in the commercial auction market represent a wealth of accumulated knowledge and they remain committed to retail property investment. However, to reduce risk there is a tendency to invest more in the market they know, which means locally, and in high-quality assets in great locations with relatively bullet-proof tenants on long leases. But, there is still interest in assets with more risk as long as the price is right.

“We are also noticing stronger interest in mid-priced commercial lots from those looking at alternatives to residential buy-to-let and we expect this to continue.
“Overall, with the uncertainties of BREXIT and of the High Street we expect the investor push for quality to continue along with a low-interest rate environment making commercial property sector as whole attractive to investors.”