IPD, in association with Acuitus and EIG, has launched a new index based upon the change in retail property values sold at auction.
The index will provide greater transparency on price movements observed in the UK auction rooms, which are often seen as a leading indicator for the secondary market.
The first index results show that although the high street may be suffering at the hands of insolvencies and the internet, the average price of retail property selling at auction rose by 1% during the first quarter of 2012.
Auctioned shops deliver almost a third more income than an average retail unit – a sign that all may not be lost for Britain’s high streets. Auctioned properties, with their lower values, are offering considerably better value to investors, and thus activity is increasing. The average yield (essentially income per year) on a retail unit bought at auction is now 7.8%.
This is 190 basis points higher than in the wider market, or a difference of 32%.
Two-thirds of properties sold in the commercial auctions market are retail units – and the majority of today’s trading now occurs in the auction room. The auction market reflects the same investment characteristics as the wider normal market that IPD measures. But the reduced lot-size of auction purchasers means that deals are more likely to be affordable to small investors.
Richard Auterac of Acuitus commented: “A lot of the reasons for our high street woes are the overpricing of retail rents. Occupiers can’t afford to rent shops but that isn’t necessarily the fault of landlords. As we saw with Clintons, many retailers overpaid simply to get better positions on the high street and as a result, when the market turned, they were left high and dry. As major investors – like pension funds – stick to large shopping centres where economies of scale help them retain profitability, high street shops that are more management-intensive are being left to the smaller investor.
“We’re seeing a rebasing of the high street that’s being caused by banks who lent against unsustainable rental contracts being forced to crystalise their losses. The result is that rents could become affordable and sustainable and it’s a once in a lifetime opportunity to rebalance things.
“The smaller, cheaper units offered at auction are possibly the best indicators of investor confidence in the high street. Despite widely negative reports concerning the UK retail sector in the last year, smaller investors are seeing these units as excellent value, and offering an extremely competitive return. To put it simply, the price seems to be very much right.
“Tenant and asset selection is incredibly important, but the point to be gleaned from this is that the UK high street is contracting, not vanishing, and it is retail renaissance, not exodus – and it is the smaller investors who are willing to invest because they see the value offered in them.
“The UK high street needs investment, and this is almost at a grass roots level – but it is the first sign of good news in a long time.”
IPD Senior Research Manager Greg Mansell commented: “In the commercial market we have seen a considerable transition where investors have sought security through larger investments occupied by larger businesses.
“In the auction room a different story has unfolded. Smaller investors are buying smaller units, which is vital for independent retailers looking for flexible leases and a landlord willing to actively manage the asset.
“Price movements in the auction room are closely linked to changes in consumer sentiment, which is why prices fell harder than in the wider market in recent years, but now offer good value today. Private investors are in-tune with the trading conditions of their local market and the fortunes of their tenants. The recent turning of consumer and retailer confidence and auction prices may be an incredibly important step for the regeneration of the high street – investors are recognising what is going to work and are putting money into the right areas.”
The index was launched at a Bright Talk webinar which can be accessed online here
