Undersupply is pushing down prime yields in the commercial auctions market, according to the latest Commercial Property Auction Data report.
The report, compiled by auctioneer Acuitus and data expert MSCI, found that prime average yields hardened from 6.42% during the March round of auctions to 6.34% in May.
The average yield over that period softened from 8.62% to 8.76% but, according to cPAD, this was not the result of weakening prices but due to a greater number of higher-yielding assets entering the market.
London yields shrunk by 34 basis points to 5.98% as supply dwindled and demand surged.
The proportion of London assets sold fell from 20% to 10% of the total between March and May, which Acuitus auctioneer and author of the report, Richard Auterac, said was “low and paradoxical, bearing in mind the huge demand from investors for assets in the capital” and would fuel even higher prices.
Just over £100m of commercial investments were traded in the UK’s leading sales rooms during May, broadly in line with the same period in 2014.
The number of properties sold rose by 11% to 185, with success rates improving from 70% in May 2014 to 83% this year.
“More occupier demand, improved availability of debt, and slowly recovering levels of personal wealth have contributed to higher sales rates,” says the report. “Unfortunately, the supply of assets coming into the auction room is still below the level of investor demand, especially with regard to better- quality assets in London and the South East.”
It adds: “There is a whole new raft of private investors waiting in the wings to enter the market if it can supply the type of assets that fit their criteria.”
Auterac said that more properties would come to market over the next one to five years as investors began to rationalise their portfolios.
Compared with the March round of auctions, volumes were down by more than £70m, with the number of properties sold down by almost a fifth and the average sale price dropping from £737,446 to £542,303.
May figures
Average success rate 83%
Average prime yield 6.34%
AVG sale price £542,303
Total sales £100m
Source: MSCI/Acuitus
Leisure pleasure
Leisure bounced back to become the second most popular asset class in the auction room in May, generating £17.5m of sales, compared with £6.5m in March. cPAD put the recovery down to a perceived improvement in the balance sheets of leisure companies and the allure of the long leases typical in the sector. Retail remained the biggest sector by volume in May, with £64.2m of assets traded.
