The latest Acuitus/IPD cPad Commercial Property Auction Market Flash shows that the round of auctions in December experienced a much stronger buying environment than expected.
December saw the greatest level of buyer demand in 2012 with success rates peaking at 81% up from 77% in Q3. Post-auction sales have pushed sale rates towards the 90% mark which suggests a depth of demand more consistent with normal market conditions.
With the current yield gap between prime and secondary at its widest in 15 years and a dramatic re-basing of retail and office rents outside London, investors are taking a slightly more positive view on the risks attached to buying secondary property.
The cPad average yield for all commercial property selling at auction hardened 40 basis points from October 2012 and now stands at 9.7%.
The current gap between the prime yield of 6.9% and secondary yield of 11.2% is 430 basis points compared with a gap of 510 basis points last October. The average yield for investments let on leases with less than five years to expiry continues to move out and stands 40 basis points higher at 11.4% whilst the yield for 6-15 years’ unexpired is 8.1% and has hardened 20 basis points.
Acuitus auctioneer, Richard Auterac, comments: “The market is still fragile and successful transactions are property-specific with careful attention being paid to pricing. It is likely that 2013 will see greater activity because sellers and their lenders will have more evidence to determine their pricing expectations, adjust to market levels, liquidate their assets and recycle their capital.
“Similarly, an increasing number of buyers will feel that the bottom of the economic and financial cycle has been reached and that property priced at this stage should produce long-term capital growth.”
Retail property dominates the asset types that sell at auction and the latest cPad charts how they have fared during the year. IPD’s Greg Mansell comments: “In the early part of 2012, London shops saw values slip but the second half of the year saw a return to growth and values were up 0.3% y/y, as at November 2012.
“Conversely, shops outside of the Capital continued to haemorrhage value and stood 8.4% lower in November compared to the 12 months prior – although the rate of decline has decelerated in recent months.
“Most investors are likely to hold off until consumers sustain spending and retailers commit to consistent rental growth, which may first require sharp write-downs in the near term.
“However, based on the activity in the auction room and much improved sales rates for high-yielding regional stock, many investors are already acting on the early signals and deciding that at today’s yield and rental levels, the long-term returns will compensate for the risks.”
To access the full cPad January 2013 Market Flash please click here