Originally published in the EG 08.01.25
The UK commercial property auctions sector is seeing significant shifts in investor preferences. This, combined with economic pressures, and sector-specific dynamics, is reshaping the landscape, signalling a departure from traditional norms and a move towards diversification and resilience.
The Shift Away from Retail
One of the most notable trends is the declining dominance of retail properties in the commercial property market. In Q4 2024, retail properties accounted for only 43% of sales by value, and for the entire year, they represented 55% of total sales—the lowest proportion ever recorded in cPad history. This marks a stark contrast to previous years when retail assets dominated the market accounting in some quarters for more than 70%.
High Street Retail has been the dominant investment medium for the private investor and family offices. The downward fall in rents and consequently capital values over the last 10 years has been dramatic. The collapse of major national multiples and department stores and the rise of online shopping has led to an increase in uncertainty about the future of the High Streets. Shorter leases and changing trading patterns have meant that retail is no longer a one-way bet it once was. This poses two questions. Firstly, if the bottom of the market has been reached, does this mean that the next direction can only be upwards! Our cPad analysis indicated that the bottom of the market in terms of overall average yields was reached in Q3 2023. Secondly, is a new set of investor tools required to pick the right location and occupier and then to actively manage the investment? No longer the 25-year FRI lease let to a household name!
As the institutional investors have sold the vast majority of their smaller retail holdings one has to question whether the reduction in the number of retail lots is due both to a lack of supply of better quality assets and/or that high street retail is no longer the go-to investment medium for the private investor. This may be a trite answer but it’s probably a bit of both!
So where have we seen the demand finding an outlet recently; firstly, mixed use development or change of use from commercial to residential. The perennial favourite of ground floor retail with flats above and/or the potential to add residential above and “at the back” are still keenly sought after! This has been the most popular sector
Secondly, alternative sectors have also gained prominence. Leisure and other non-retail properties contributed to 26% of total sales value in 2024, reflecting a diversification trend in investor portfolios. This shift underscores the growing importance of sectors beyond retail, with investors increasingly recognizing the potential of leisure, hospitality, medical and other specialised properties to deliver stable returns in a changing market. The investor’s requirement is to have a decent length of income secured on a financially strong tenant
Investments with plenty of land such as builders merchants, out-of-town retail and industrial with low site coverage as well as commercial ground rent provide the opportunity to add value in the future and there is a ready demand for them.
Broadening Role of Auctions
The role of auctions in the commercial property market has expanded significantly as a result of the shift to online live stream auctions. As already noted, traditionally seen as a platform for retail asset transactions, auctions are now being utilised to sell a broader range of property types and locations. This trend is indicative of a significant shift, as investors look to rebalance their portfolios and diversify their holdings.
In the final quarter of 2024, the types of lots sold exemplified this diversification. Investors are leveraging auctions to acquire properties across various sectors, moving away from a retail-centric focus. This change is emblematic of a broader trend toward portfolio rebalancing, where resilience and diversification take precedence over concentration in a single asset class which has shown poor investment attributes over the last 10 years.
This time in the cycle is being seen by those who have the confidence and money as an exceptional time to rebuild portfolios with stock for future development. Some might say a once-in-a generation opportunity. In the heart of one major UK city a former student and residential building of 90,000 sq ft sold for £5 per sq ft and an historic harbour-side multi-storey warehouse of 45,000 sq ft sold for £1 per sq ft!
Key trends for 2025
The private investment market is undergoing a structural re-appraisal characterised by diversification, regional concentration, and a bifurcation in asset demand. Key trends include:
These trends reflect a broader rebalancing by investors as they adapt to evolving market conditions. As the market enters 2025, resilience, diversification, and a focus on quality will remain central to investment strategies, shaping the future of the UK commercial property sector.
