Published by EG on 19/01/23
Cash-rich private investors snapped up £774.6m of investment-grade assets and income-producing development properties at auction in 2022, down only slightly on the previous year, according to analysis by commercial auction house Acuitus.
It said the 2022 figure was 22% above the average annual turnover since 2011. The total sold during the post-Covid-19 bounceback in 2021 was £780.6m.
Continued demand from private investors also kept yields for commercial properties selling at auction relatively firm throughout 2022. The weighted rolling average yield remained at around 7.5%.
Acuitus chairman Richard Auterac said: “In the course of what was an incredibly challenging year for commercial property capital markets, it was notable how the values of assets that changed hands in the auction room were maintained.
“The weighted rolling average yield has remained at around 7.5%, which is in contrast to other areas of the market that have seen a substantial outward movement. This can be largely attributed to concerted demand from private investors who are favouring real estate ahead of other investment options and also the broader base of asset types that are now coming to auction.
“Investors have been prudent with their equity, investing opportunistically when the right investment has become available. Since the global financial crisis, lenders have also been careful not to create a feeding frenzy,” he added.
“The market has therefore not seen the scale of irrational enthusiasm from investors that was seen 15 years earlier. Although demand for good quality has often exceeded supply, this has been selective and this has led to yields remaining fairly stable over the last five years.”
The total number of properties sold in the year was 1,103 (down by 9% on the previous 12 months) with an average sale success rate of 88.5%.
Retail property has traditionally accounted for the bulk of assets coming up for auction, but last year accounted for the lowest proportion of annual sales seen for this sector at just 57.9%. This equated to £448m of retail properties sold.
In contrast, the final quarter of last year saw a growing number of assets from the alternatives sector – motor trade, leisure, health and assisted living assets – coming up for sale. These accounted for 22.8% of Q4 sales.
Auterac said: “Many investors see these sectors as being underpinned by essential demand for the services that the properties provide and therefore providing more resilient income streams.”
The shift to online sales and the pre-registration due diligence process has allowed a more forensic approach to investor demand. This feeds in to guide price adjustments and also the withdrawal of assets with low investor interest prior to auction. As a result, sale rates have remained consistently high: just under 90% of commercial property lots offered at auction in Q4 found buyers.
He added: “Sellers have always been attracted by the certainty and speed that the auction process brings but this has been further enhanced by the pre-sale insights that the online process brings. This enables sellers to be more responsive to prevailing market conditions and achieve their aims.
“During 2023, as market conditions remain tough and the availability of debt – particularly for refinancing – becomes more problematic, we expect growing number of asset owners to use auctions to access the sustained demand from private investors.”
