I may be a relative novice in the auction industry, having only just completed 20 years on the rostrum, racking up £10bn of sales across 21,500 lots.
Let’s reflect on some of the challenges and changes during that time.
The web has, of course, delivered most of the change to the make-up of the high street, along with the vagaries of the financial markets, the latter so well documented that it is now referred to as the GFC.
A photocopier?
Where once we employed people to produce endless hard copies of leases, the record for which was 32, this is all now done online, allowing us to manage updates and understand how and when buyers view the documents, and predict their intentions.
The world of proptech is changing rapidly, spurred by online products such as Blockchain, among others. With some title reports now being generated without human input, a vendor’s pack will soon become available to all, at any time. Thank you, Sir Tim Berners-Lee.
Who needs an auctioneer?
By the turn of the millennium, bearing in mind that eBay arrived in the UK in 1999, the idea of a human being with a hammer selling property in a room full of bidders seemed, even then, short-lived, despite property having been sold at auction for hundreds of years.
The combination of online bidders with a room full of buyers is proving to be a popular and highly effective method of sale. We are all, thankfully, still human and there is an innate joy in buyers’ eyes when they have out-stared their underbidder and out-clicked the invisible mouse from afar. They walk tall as they leave the room with a contract in hand.
Will shops still prevail?
The high street still dominates the commercial auction sector and comprises around 70% of stock sold over the past 12 months, as it has done for many years. Buyers have always liked the lot size, lack of obsolescence and adaptability offered by high street shops.
A shop is also an easy asset to understand. Buyers drop in, work out how busy it is and consider if it’s selling something that people will want. Finally, there is always the queue test – how long is the queue at the till at peak periods and for how many hours of the day.
The driver for our investors is, of course, yield and the yield paid is as strong an indicator as any of the demand and belief in the asset.
The graph above shows how retail yields have changed since 2000 and how the yields on all stock, grade-A and grade-B, traded perilously close in the mid noughties – at one point in early 2008 within 100 basis points of each other.
The shocks of 2008 delivered a correction, with the margins between the best and poorest stock more than doubling very quickly, and increasing again following the Brexit vote. It is this ever-changing measure that shows buyers’ greater understanding now of risk and their perception of growth potential.
While there have been retail failures and changes in shopping habits, the market has also seen many success stories. People like going out, meeting each other and shopping. If you are brave enough to drop into a high street McDonald’s on a Saturday, you will see how this is also embedded in the next generation too. While the likes of Comet and Rumbelows have been replaced by charity shops and discount stores, coffee shop chains are flourishing. Costa has more than 2,200 outlets across the UK and trades alongside a myriad of independent outlets and high street stalwarts including Clarks, H Samuel, Boots and Greggs.
Latterly, the passion for property ownership in this country has delivered real profits from residential holdings. Regular tax changes along with negligible returns on cash have encouraged those investors to look at the commercial sector.
How to measure decisions?
High street banks represent one of the biggest pools of assets sold at auction, and provide a wide spread of lot size, geography and lease length, along with their own challenge from online banking.
The spread of yields in our sales typically ranges from 4% to 11%, which is almost a factor of three. Simply put, this pricing suggests that buyers think that the risk of a secondary bank on a weak high street delivering income for a long time is a third as likely as the best assets.
To illustrate this, a short lease to Lloyds Bank with tremendous alternative use value achieved a 4.7% yield, selling for £1.1m, which may seem appropriate for a picture post card bank in the wealthy Cotswold town of Stow-on-the-Wold.
Thirty miles due south, on Regent Street in Swindon, a bank generating similar rent but sublet at less to a retailer, commanded only 11.3%. These investors clearly understand the risk and are voting with their cheque books.
Only time will tell if our 200,000 investors are correct in trusting their instinctive feel for the high street to generate income.
However, with their many years of investing experience and plenty of reasons not to, the very fact that they are still keen makes me think that they will be proved right.
George Walker is partner, commercial auctions, at Allsop
