Despite the political flux of the last six months, the market has largely remained stable with no significant changes to pricing, supply or demand.
At the end of last year, we were predicting continued demand for well let, well located investments with a possible slight cooling in the pricing of more secondary investments. The number of lots on offer was likely to reduce as some of the major sellers completed their sales programmes, sellers struggled to find properties to re-invest in and the costs of transacting increased, deterring some vendors from selling.
Following a strong December sale, our first auction of the year in February, although of a similar number of lots to February 2016, only reached a total of £64M (£76.1M 2016) but with a very similar success rate of around 90%. The result met our expectations and encouragingly we saw a significant increase in the number of buyers purchasing with cash. Demand from investors was as strong as ever.
With US interest rates rising on the 15th March and the imminent triggering of Article 50 for the UK’s exit from the EU, we were slightly concerned as to how the market would receive our March sale. The market clearly didn’t share our caution.
The March sale, total £93.4M, was only £8M short of the previous year’s total with a similar number of lots offered and a success rate of just under 90%. Average yields for the best quality lots continued to tick down towards 5.5% net initial, from an average for the whole of 2016 of 6.2% net initial. Competitive bidding again ensured some excellent and in some cases unexpectedly strong results.
With the triggering of Article 50 on 29th March and a snap election called on 18th April, we started to market our third auction of the year, held on 23rd May, with a similar number of lots offered to the year before. However, despite an impressive £105M realised, our success rate at 77% was somewhat lower than our average.
Maybe between ourselves and our clients the pricing of this sale was a little bullish for the market. Still, with over three quarters of the lots selling and continued buoyant demand, some impressive prices were paid. Indeed, average yields for the best lots fell slightly again to 5.5% net initial, whilst yields for slightly more secondary lots (shorter leases) also fell to 7.5% from 7.7% in March.
As we approached the half year sale in July, the country delivered a shock election result; results from the sale showed a hardening in average yields from 5.5% in the May sale to 5.3% as investors competed for safe, quality income. Conversely, yields on more secondary investments moved out to 8.2% from 7.5% from the previous sale. Poorer grade investments, those in tertiary locations and let on short leases, fared even worse. However, the overall sales total at £88.5M was comfortably above the previous year’s sale total of £70M and with a success rate of 87% we had clearly learned our lesson in pricing from the May sale.
So far this year, we have offered an identical number of lots to last year over the same period, raising a total of £351M (£365M 2016) with an average success rate of 85.4% (89.6% 2016).
With no real divergence from our predictions at the beginning of the year, we have been pleased to note the increasing number of lots which have been offered and sold in excess of £1M. To date, we have sold 100 lots in excess of £1M, the largest being an office building in St Albans which sold in our July sale for £7.1M.
The year’s results are in line with expectations, despite the uncertainties which the political situation has once again created. We hope that the year will continue as it has begun.