Arguably, Robert F Kennedy’s words “like it or not, we live in interesting times” have never been as true as in the year just past. In what has been a turbulent year, the dominant trend for 2016 has been the resilience of the commercial property auction market. In fact, having raised 34% more than last year, 2016 was a record year for Allsop.
Seasoned buyers look further afield in the quest for yields
Our first commercial auction in 2016 started off much as 2015 ended and the February sale reached £76m with a 92% success rate. Low interest rates combined with a shortage of good quality lots helped drive A grade yields down to an average of 6.3%. The star lot was a parade of shops in Ruislip, which sold for £7.2m and turned out to be not only the largest single lot sold in 2016, but the highest value lot sold under the hammer for nine years.
With no major changes to market conditions, the March sale was the largest spring auction since 2007. A total of £102million was reached and 92% of all lots offered sold. Notably, there was an increase in repeat buyers, with 88% of successful bidders having bought from us before. In the quest for yields, it was also clear that buyers were increasingly investing outside their “home region”. Grade A yields hardened further to 5.7% and London suburban properties saw strong demand. In total, sales in the first quarter of 2016 raised £178million, a 55% increase on the previous year.
The commercial auction room before and after Brexit
Our next sale was held in May, a month before the referendum on Britain’s position in Europe. With the polls indicating a “yes” vote and no sign of any changes in interest rates, the total roared away to £119million with a success rate of 87%. The number of new buyers increased and demand for commercial property was boosted by buy-to-let investors entering the commercial market to diversify their portfolios as a result of the impact of the tax changes on residential investment.
In ‘the year of Brexit’, the crucial test of market sentiment came in our July auction, held less than two weeks after the referendum. Despite the shock result, the lack of leadership and doom-managers predicting economic chaos, we held our breath to see what the market would do.
Those who came to the auction to witness any signs of weakness were disappointed; the auction raised £69m with a success rate of 87%, which was higher than the 80% achieved in the July auction in 2015.
Even though foreign investors eschewed the top end of the commercial market, UK domestic private investors, unable to obtain decent returns elsewhere, turned to auctions to invest in smaller commercial real estate assets. Investment teams from banks, pension funds and private equity funds also filled out the room, looking to the auction as a barometer of the market.
Over the summer the political situation stabilised and Team GB came second in the medals table at the Rio Olympics. On 5th August, the Bank of England reduced interest rates to an historic low of 0.25%. The continued low interest rate environment underpinned the strength of investor demand in the auction room, as yields from commercial property investment remained extremely attractive when compared to alternatives.
In spite of negative commentary about the economy and issues impacting the wider property market, we firmly believed that the secondary commercial market would hold up and said as much in our Summer Review, and so it proved.
Ending the year on a high
Investors remained undeterred as the year progressed. The October sale – which was our second largest sale of the year - comprised our usual mix of commercial properties, from small regional retail investments to a £6million parade of shops in Penge. In a packed room, we realised £121million with 90% of all lots offered sold.
With the surprise presidential election result in the USA in November, it was with some trepidation that we went to the market with our December auction catalogue. Whilst the success rate - at 80% - was a little lower than at previous sales, we still raised a total of £122million, a year-on-year increase of almost 100% compared to the £59.8m sold in December 2015. With a total of 170 commercial lots sold, it was the largest December catalogue offered by us for a decade.
Despite the prevailing political and economic uncertainty, 2016 was a very positive year for the commercial property auction market. The December result took the total realised by Allsop’s commercial auction department in 2016 to £610m, against a 10-year average of £450m. Having sold a total of 971 lots, the firm’s average success rate was 88% and notably 170 lots were sold over £1million, a substantial increase from the 120 sold in 2015.