cPad Market Flash May 2013

9th May 2013

The latest cPad market flash shows that the increased auction activity that was evident in the final quarter of 2012 was sustained during the latest round of commercial property auctions in February and March.

Sales at auction were up 104% year-on-year as more assets come into the room to meet demand from investors – many of whom believe that prices for certain assets have reached the bottom.

The market flash – a joint initiative by Acuitus, IPD and Essential Information Group – shows that total combined sales in February and March were £116m which was 68% up on December. Sale rates have also maintained their high levels with 79% of all lots selling in the last round of auctions.

Acuitus auctioneer, Richard Auterac, comments: “The current improved sale rate can be attributed to a generally low supply level and an increase in demand which has been fuelled by a realisation that for certain assets the bottom of the market has been reached.

“There has been a marginal improvement in buyer confidence as private investors continue to seek alternatives to low yielding bonds. Similarly, experienced property companies believe they have the right asset management skills to turn properties which are sensibly priced and reflect the current economic and financial circumstances into income producing assets with the expectation of capital appreciation in the medium to long-term.”

In the latest round of auctions, 66% of the lots sold were retail properties. However, there has been a significant increase in investor interest in the office sector during the last 12 months and this asset type accounted for 17% of the lots most recently sold.

Auterac comments: “This is a very encouraging trend as it shows that multi-let office buildings across the UK can be recycled into the hands of assets managers who believe they can turn them around either in their existing use or for residential. This was reflected in the £1m+ average lot size of office assets that were bought in the latest sales”.

Yields have continued to move out with the All-Property yield standing at 9.9%, but the pace of yield weakening has slowed over the last 12 months with only a 20bp rise since December.

Although both prime and secondary yields softened during the latest sales, the gap between them narrowed again and stands at 400bp with the prime yield at 7.3% and the secondary yield at 11.3%.

There has been a growth in private investor demand for well-let, rack-rented shops with 10 year-plus income.

This is illustrated at the prime yield end, and in a resurgence in demand for the higher yielding properties which offer a most attractive cash return on paper but come with health warnings for those who do not have the requisite skill to manage the risks. Richard Auterac observes: “Generally speaking, there are two different types of buyer in the room: the long-term, high net-worth investor looking for high initial income with capital growth prospects (which is particularly important if inflation returns), and the property company excited about getting stuck into dramatically re-priced properties”. 

Looking at the macro factors influencing the market, IPD’s Head of Research, Greg Mansell, reports: “At the beginning of the year, the outlook for 2013 was far more positive in comparison to 2012 after the retail sector enjoyed a good Christmas. However, following the January sales, retail began to suffer once again largely due to bad weather and the retail investment market was also rocked with the news of major retailers such as HMV, Jessops and Blockbuster, falling into administration.

“More positively, although standard retail units are continuing to struggle with many external factors, the letting of vacant space remains encouragingly high with supermarket tenants in particular, keen to move into prime retail space on the high streets sparking a bidding war between the main market occupiers.” 

The latest cPad can be downloaded here