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Commercial Auction Annual Review 2014
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Property Analysis

2014 Property Analysis Overview

In 2014 we held six sales, sold nearly 850 properties and raised in excess of £524m for our clients. Our detailed analysis of those transactions will help shed some light on where the commercial market finds itself at the end of a busy year – and more importantly perhaps – the start of what may become a year of change.

Looking at the year in detail, we saw a steady increase in the average lot size, from £522,000 in February up to £676,000 by the December sale. This reflected a number of positive factors: a greater confidence from sellers using the auction room to sell larger lots, yield compression and an improvement in the quality of properties being offered. 134 lots over £1m were sold (102 lots in 2013) of which five were over £5m, an unprecedented result.

Sector Distribution 2013 vs 2014

Some £300m of retail investments were sold during the year, a 21% increase over 2013. This reflects a modest reduction to 57% of the total from 62% in 2013, but despite the difficulties facing a number of the UK’s High Streets the demand for retail investments remains firm. This sector included £64m of bank investments and £29m of convenience stores.

The office sector saw an increase, with £77m of sales from £47m (15% from 12% of the total). A number of vendors took advantage of the firm appetite for
offices, given the improvements in tenant demand and the opportunities presented by Permitted Development Rights.

Industrials too, as a result of positive signs of recovery in the wider market, proved to be popular, with £61m of sales, nearly double that of the previous year.

The ‘Alternative’ sector also continued to increase, with a number of medical investments (doctor and dental surgeries) being sold, raising over £14m. ‘Sale
and Leaseback’ portfolios in the sector proved highly sought after.

Regional Distribution 2013 vs 2014

The traditional predominance of the South East shifted over 2014. Investor confidence in the Regions recovered as a result of increasing tenant demand and the prospect of improved returns. Having accounted for 55% of value in 2013, London and the South East eased to 49% in 2014. As the year progressed, Vendors took advantage of the improved conditions and the supply of Regional property grew, with 61% of the year’s volume being in the Regions (56% in 2013).

Within the South East, the continued demand from both domestic and overseas investors for properties in London drove the average lot size in the capital from £685,000 in 2013 to £1.1m in 2014, and yields to historically low levels.

Retail Investment Yield Analysis

As mentioned, some £300m of retail property was sold in the year, at an overall net yield of 8.1% (2013 – 8.3%). This represents a wide range of investments, from grade-A, single let shops, to multi-let, suburban schemes and mixed use buildings, in a range of different locations.

In the single let sector Grade A yields remain relatively steady at 6% (net initial) for the year, just below the five year average of 6.1% (net). B-grade investments (those in inferior locations or with shorter income streams) tend to show wider fluctuations, but averaged out at 8.3% for the year. This was a significant improvement over the 2013 result of 8.9%, reflecting both the improvement in confidence and the rebasing of rents on the High Street.

 

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