IPD/Acuitus Retail Property Auction Index Q3 2012

12th November 2012

The IPD Acuitus Retail Property Auction Index for Q3 2012 shows that investors have not written-off the UK High Street:

Bidders are continuing to buy into the distressed UK High Street, despite the raft of new insolvencies that have struck the sector in recent months. However, this turbulence has taken its toll on the price of assets. The IPD/Acuitus Retail Property Auction Index for Q3 2012 shows that prices fell a further -2.6% quarter-on-quarter, and are now -31.4% below 2007 levels.

The IPD/Acuitus Retail Auctions Index, in association with EIG, is based upon the change in retail property values sold at auction. The index provides greater transparency on price movements observed in the UK auction rooms, which are often seen as a leading indicator for the secondary market.

Over 76% of units offered at auction found buyers in the third quarter. This was a 4.3% increase on Q2. Of the retail assets sold in Q3, High Street shops represented 54%.

Investor interest in the auction room remains one of the few signs of life for the beleaguered retail sector, and particularly the suffering High Street.

Assets sold at auction are generally smaller, non-institutional assets. They are often let to the High Street banks and national multiples but also to local traders. Accordingly, they tend to attract smaller, private investors, searching for an alternative investment medium with a higher income return.

Though buy-to-let residential assets are the favoured route for many private investors, there is now a steady stream of buyers attracted to High Street shops which can offer yields of 8% – an attractive proposition in light of the pension cuts affecting many in the UK.

Investors are taking control over where their money is invested rather than placing it all through an external fund manager. Many of the auction properties they buy are already well known to them and this is a further attraction. Recent investors are taking advantage of the price rebasing that has been in train since 2008. New buyers are not saddled with high historic loans and are therefore can be more flexible with regard to what rent they set to attract new occupiers.

Of the 116 retail assets purchased at auction during Q3, all but seven were already let. Ready-made investments which have been de-risked as far they can are preferred with little appetite for refurbishing a vacant property to increase possible rental income.

Volume of sales declined in Q3, but this reflects the auction cycle which sees the majority of assets coming to market in the final quarter of the year.

Richard Auterac, chairman and auctioneer at Acuitus, comments: “The flexibility that the new investors have could be just what is required to rejuvenate the High Street by providing shops which retailers can afford to trade from.

“The UK High Street is contracting, not vanishing, and can undergo a rebased retail renaissance. Auctions and the investors they attract will continue to play a vital role in this process.”

Greg Mansell, Head of Research at IPD, comments: “Yields in the sector are about 30% higher than those in commercial retail, highlighting the secondary nature of the assets, but also the value they offer – if they are let. Rates of sale have not dropped below 70% in the last two years, highlighting that if the price is right, there are buyers – despite confidence in the future of the UK High Street being at an all-time low.

“The data is showing that though the situation is bleak, the High Street is contracting, not vanishing, and though asset selection and lease type is incredibly important, it is reassuring to see this investment at a grass roots, management intensive, level.”

To view the latest Retail Property Auction Index please click here