The four-year decline in the price of retail property passing through UK auction rooms appears to have slowed during the first three months of 2013.
The IPD UK Retail Property Auction Index – which is produced in conjunction with leading specialist auction house, Acuitus – measures the quarterly change in prices of retail properties sold at auction since 2003.
In the first three months of this year, the index – which tracked the sale of £55m of retail property – rose slightly to 89.2. Although this still represents a 0.9% drop in capital value year-on-year, the latest index rise reflects increased investor appetite for retail property.
Greg Mansell, Head of Research at IPD, said: “Sales at auction give a rather alternative perspective on the future of the UK’s high street. While in other areas of the commercial property investment market buyers are concentrating almost exclusively on prime assets let on long leases, the investors who buy at auction are taking a less risk-averse approach to investing.
“If they buy at today’s prices, the owners can offer a level of rent which will attract retailers into empty space and drive income returns.”
With average income yields from retail property standing at around 9%, investors have considerable ‘elbow room’ for active asset management but the key is retaining tenants or attracting new occupiers at realistic rents.
Richard Auterac of Acuitus comments: “In the first quarter the prices of retail property sold at auction actually increased by 1.3% against the December 2012 level, but it is too early to say that the sector has turned the corner.
“This slight improvement in the index is a sign that experienced property investors now believe that it is worth buying shops selectively on the basis of what are radically re-based capital values and rents.
“However, this is not a market for the inexperienced, passive investor. Many of these properties which are over-rented or have early expiries will require intensive asset management if they are going to show long-term returns. Retaining tenants and minimising voids are of paramount importance.”
The Q1 2013 Retail Property Auction Index can be downloaded here
To listen to an online webinar with Richard Auterac and Greg Mansell discussing the latest index findings and their ramifciactions for the wider property market please follow this link