Regional distribution 2014 to 2018
Continuing the theme from previous years, investors remain focused on London and the South East as their preferred region
£169m of investments were sold in London and the South East in the period, representing an increase to 52% of the total (2017 – £159m and 44%). Conditions are undeniably difficult in the poorer regional towns, but there have been some strong results for attractive assets in a good number of locations. Local interest remains firm, but the effects of over-pricing cannot be underestimated.
Sector distribution 2014 to 2018
Looking at the £320m of sales in the four auctions (Feb-July) it is clear that retail investments continue to form the largest sector.
Against the same period in 2017 of 67%,the retail proportion increased to 72% (£229m). Leisure investments (mainly pubs and restaurants) also saw an increase from 7% to 9% (£27m).
The office sector, which over recent years has benefitted from the enhancement of easier conversion to Residential uses through Permitted Development, saw a drop to 4% of the total sales, a reflection of the reduction in supply of suitable buildings. However a number of these assets are being handled by our Residential Auction division, who bring their specialised experience to bear, to the benefit of the Vendor.
The industrial sector continues to experience tight supply, with Vendors holding on to better performing stock. Good tenant demand is helping this investment performance.
The remaining sectors, Ground Rents, Medical, Motor Trade make up the balance, representing around 9% of the total sales (£26m).
Yield analysis 2014 to 2018
The variations in retail yields over the last five years makes for interesting reading.
Overall, the All-Retail yield (reflecting the prices secured “under the hammer” for all single and multi-let retail investment assets) has remained reasonably steady, fluctuating within the 6.5% – 8.5% range. This might suggest a surprising resilience in the sector.
However, a closer look at the data reveals more significant movements in two of the sub-groups within the dataset.
The riskier, high-yield properties – those in poorer locations, let on shorter, over-rented leases – span the much broader range of 12% – 16% over the period. The graph marks some outside events, which clearly had an influence on investor behaviour; the confidence inspired by the 2015 election result was reflected in a reduction in yields on the riskier assets. This was soon eroded by the BREXIT vote. The data suggests the last few months of 2017 saw a hardening in yields for the sector; while there was a feeling that investors were becoming happier with higher levels of risk, this was hit in early 2018 by the sudden increase in the number of major retailers adopting a CVA-route with their Landlords, in an attempt to reduce rents or avoid lease commitments. High-risk sector yields moved sharply out.
Conversely, the demand for high quality assets – those in first class locations, with undoubted tenants at market rental levels – firmed, as investors once again focused on security. The long term yields in this sector have remained around 4% for many years, but by the middle of 2018 this had firmed to 3.8%. This appetite shows little sign of abating.