Commercial Auction Summer Review 2016
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Property analysis

Sector distribution 2014 to 2016

The volume of retail investments increased again against last year’s figures representing 75% of the total lots sold, which at £243 million is 25% over the H1 2015 total. 429 retail assets were sold, accounting for 66% of the total sums raised.

Both the office and leisure sectors by comparison saw little change in volume and value, accounting jointly for £56 million worth of sales (2015 – £49 million) again, representing 11% by volume (2015 – 11%).

The volume of industrial investments saw a welcome improvement, and strong demand, with 29 assets being sold, raising £28 million (8% of the total – 2015 – 5%) The ongoing
popularity of industrial investments – particularly multi-let estates – gave a number of vendors sufficient reason to make disposals, capitalising on the current demand.

Regional distribution 2014 to 2016

Demand for London stock seems as strong as ever, with lots in Chelsea and Edgware for example, exceeding even vendor aspirations in our May and July sales. Whilst the number of lots offered in London has fallen slightly, the sales total has increased;larger lots coming to auction has been a trend over the last 6 months. The total realised from assets in the capital increased by 10% to £60.7 million. The South East also saw an increase in total
sales to £116 million from £87 million in H1, 2015.

Both the North East and North West regions saw increases, accounting for £76 million of sales, 28% by volume (H1, 2015 – £39 million/22%). The greater yield available in the Regions has drawn in buyers, both from the local catchment area as well as from outside the region.

Yield analysis 2009 to 2016

The differential between the low-risk and the high-risk investments continued to shrink over the period, from a high of 12 percentage points in 2012/13. Shocks on the High Street
however do have an effect on confidence with BHS and Austin Reed being two of the more high profile failures.

There are a number of influences on the shrinking yield gap between “Hi and “Lo”; not only is demand having an effect, but also rental levels are being adjusted down to market levels and thus there is a decreasing effect on the average yield.

The poor returns on cash, with clear signals that rates might fall even further, have driven an increasing number of investors to the safer haven of property, with significant competition for the best investments in the best towns. As has been seen over a
number of years, demand has significantly outstripped supply, thereby compounding the downward pressure on yields.

The yield for the highest quality assets has been squeezed yet further to around 3.5%, against a 5-year average of 4.25%. Investors also remain sensitive to rental values which in some towns are increasingly difficult to assess with any accuracy, given the lack of market evidence. Investments where rents have been rebased to market levels therefore have greater appeal.