Why auctions are a good barometer for the market

17th June 2024

Originally published in the EG 17.06.24

One of the great powers of the UK commercial property auction market is that it generates a huge amount of instant transactional market data on values, yields and buying patterns.

However, looking at the overall headline figures for auctions doesn’t reveal much except for general trends from year to year and you have to look deeper to see what the data is telling us.

The long-term market trajectory can be tracked by analysis of short-term performance at the individual auction level. This is why auction results can provide for someone who knows what to look for, an invaluable snapshot of market sentiment.

The Acuitus cPad data series which focuses on investment-grade assets and income-producing property with development potential, is a subset of the total UK commercial property auction market. The data is provided by The Essential Information Group and enables us to understand movements in localised commercial property markets through long-term, verifiable, data sets.

So, for example, the £63.7m of commercial property assets that sold at auction across the South of England during Q1 2024 represented almost 30% by value of the UK total of £216.9m. In terms of the number of properties sold, the South contributed 101 of 343 offered nationwide, making up 29.45% of the total. These figures mark an acceleration over the previous nine months, with the volume of sales in the South being 35% above the long-term average.

The sale rates provide further insights into the auction market’s performance. The overall sale rate in the UK was 77.4%, while the South achieved a higher rate of 79.5%. The types of properties sold in the South during Q1 2024 encompassed 61 retail properties, five office properties, eight industrial properties, and 10 leisure assets. Leisure and alternative properties, such as those used for motor trade and medical/veterinary purposes, made up 27% of the properties sold by number and 39% by value. Overall, the average yield on properties sold in the South during Q1 2024 was 8.36%, 61bps sharper than the Q4 2023 level.

So, the clear message is that investor demand for assets in the South has accelerated substantially on the back of early stages in the recovery cycle. The fact that these green shoots are first appearing in the South of course, is perhaps not surprising given the inherent economic strength of the region. The South has a more robust economy and also, when combined with London, has the greatest number of active HNWI and property company investors.

Being able to assess what other UK locations may provide early stage recovery opportunities can be a starting point for identifying assets that have stable value today and potential going forward. Given everything that has happened since the pandemic and through the cost-of-living crisis, economic progress across the country and investor demand is both patchy and sometimes surprising.

If you look at the most recent EvaluateLocate UK economic vitality index, Hull was the biggest upward mover in terms of economic momentum across 20 UK cities while Glasgow and Sheffield also showed marked improvement. At a more granular level, demand for property is primarily driven by the formation of new businesses or their expansion. In this context, tracking how a location’s business base is expanding can be very useful as it can provide an early pointer to an uptick in the property cycle.

For example, the LS10 postcode in Leeds has seen a 31% increase in active businesses during the past 12 months. This equates to an influx of more than 400 businesses and is likely to have a longer-term implication for property rents and values.

As commercial property lease lengths have generally shortened during the past decade this has eroded their bond-like qualities and so it is necessary to take a more analytical view of locations and how they shape the property markets that serve them. It is giving rise to a ‘broader-minded’ investor who wants to draw on property, economic and demographic data to influence their strategic approach.