COMMENT The commercial auction market remains active and continues to offer appealing opportunities to both buyers and sellers despite the challenging times.
Since we launched our digital auction offering, more buyers and sellers have been able to transact without leaving their homes, while having all the data they may need to make an informed judgement easily accessible.
Despite the uncertainty brought by Covid-19, there is a strong appetite for dealmaking. In fact, the auction format is ideal for those seeking commitment in the form of the unconditional contract that underpins auction sales, providing comfort and a high degree of certainty to all those involved.
Identifying the right opportunities
Given the unstable economic environment, sustainable income opportunities that can help generate long-term returns have never been more attractive.
During Allsop’s last commercial auction, which took place at the end of September, we saw a lot of enthusiasm for well-let convenience stores with corporate tenants, such as the long-lease Co-op in Honeybourne, Worcestershire, which sold for £1,205,000 with a net income yield of 4.6%. Overall, retail assets comprised the vast majority (69%) of lots sold.
Given the recently erupted “can pay, won’t pay” movement, which has seen well-capitalised companies refusing to pay rent, buyers have been paying more attention to their tenants’ track record and avoided dealing with those seen to be exploiting the government’s tenant protection scheme.
There has been a renewed interest in the suburbs, where rents might have flatlined over the past decade but now look affordable as they have benefited from targeted support through the Coronavirus Job Retention Scheme and rates holidays, along with increased local spend as workers stay away from city centres.
One such lot, which sold at our recent auction, was a freehold bank and office investment with potential for future development in Streatham, south London, which was purchased for £3,250,000, with a NIY of 5.5%.
Another lot offering long-term value was an office investment with redevelopment potential located in the popular West Sussex seaside town of Worthing. Fully let, with a lease expiring in 2031, it presented an appealing investment opportunity and was purchased for £3,065,000, with a NIY of 6.9%.
The format of the auctions may have altered, but our fundamental approach hasn’t – despite not being in the ballroom, we still take time to speak to every buyer and conduct regular surveys ensuring that the convenience of digital transacting isn’t achieved at the expense of the quality of assets.
Buyers ready with cash in hand
Hosting property auctions online has enabled Allsop to continue presenting appealing deals to a perceptive public. Out of 400 or so buyers that have taken part in our auctions, only 12.5% have used finance to exchange contracts, while the rest readily transacted in cash.
Our recent survey suggests that 22% of buyers had not bought at auction before, compared with 17% last year, which shows the growing reach of this marketing method and appetite for investment in the market. In addition, the survey has revealed that investors are now more likely to travel out of their regions in order to get the right deal, particularly those after strong income opportunities.
We have seen few distressed sellers in the past nine months, although some seem to be liquidating assets ahead of refinancing dates in 2021, which is common practice.
Looking ahead
The final quarter of the year will be no less interesting, as high street retail still has to find its level and buyers chase sustainable rental income from other assets, such as multi-let industrial and the alternative sectors, and diversify their risk across mixed-use opportunities. We look forward to our auction on 3 November, which, as always, will provide plenty of food for thought for buyers and sellers alike, and give an indication of where the market is heading next.
George Walker is a partner at Allsop
