Commercial property auction sales defy market slowdown

The volume of investment-grade commercial property sold at auction in 2016 grew by 10% to £820m, the latest Commercial Property Auction Data (cPad) report has revealed.

The report, which was prepared by MSCI and auction house Acuitus using auction sales data from the Essential Information Group, showed that the number of lots sold last year grew sharply as well, by 33%.

The strong performance, which contrasts with the sharp drop in transaction volumes across the wider commercial market, was driven by high demand from high-net-worth investors put off the residential sector by the increasingly punitive tax regime.

Acuitus founder Richard Auterac said he expected this trend to continue to drive sales this year.

Activity in the first auctions of 2017 suggest that high-net-worth investors will remain active in the auction room - Richard Auterac

“Activity in the first auctions of 2017 suggest that high-net-worth investors will remain active in the auction room, with particularly strong bidding seen for lots coming forward in the £1m to £5m value range,” said Auterac.

“With ongoing economic and financial market uncertainty, which will undoubtedly persist over the coming 12 months, the commercial property sector is capturing investor predilection for real investment assets.

“Furthermore, the compounding of tax increases for residential buy-to-let investors is also driving large-scale investors in this sector to switch capital towards commercial real estate.”

In the immediate aftermath of the Brexit vote, investors showed little sign of being put off London.

Although the proportion of London assets sold fell, demand for properties within the M25 was exceptionally strong towards the end of the year. In December, all the London lots sold and the average lot size rose to £1.4m.

Office gains

Retail continued to dominate the auction room, but the sector’s share of transactions dipped from a long-term average of 67% to 64% last year.

Meanwhile, the office sector gained share thanks to a large number of high-value assets offered for sale, notably from institutional funds and banks looking to take advantage of strong demand from high-net-worth investors.

The office sector also recorded the biggest movement in yields, which were down 48 basis points year on year. Yields hardened across all sectors last year except leisure.

Auterac said this trend might not continue in 2017 as pricing on riskier assets came under pressure.

“Despite the evident and growing demand for commercial property among private investors, there are challenges to the market,” he said. “The current economic backdrop means that the future income of some assets will inevitably be more uncertain.

“This will be reflected in the adjusted risk assumptions of investors and therefore in the necessary pricing of such assets.”

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