July ’16 Auction Analysis – No Bargains for Quality Assets Post-Brexit

With the July commercial auction catalogues published by the time the UK's shock decision to leave the EU was announced at the end of June, the July round of auctions was amongst the most closely watched by investors, commentators & property professionals in a decade.

Whilst the Pound plummeted and the Prime Minister vacated office, more questions were being asked than answered about which direction the UK would go in post-Brexit. What we have seen in the auction and private commercial property markets over the last month has confirmed several things:

  • Property continues to sell - Allsop achieved an an 82% sales rate, Acuitus 83% and Barnett Ross 90%, raising well over £100m between them
  • Flight to safety - London property and blue-chip properties with 10 year leases are seeing more interest as investors pull back from riskier deals and shy away from alternative investments such as (negative) government bonds and volatile stock markets
  • Pricing has become more realistic - whilst bargains remain rare, at least buyers aren't overpaying as much for quality investment property
  • Interest rates are going nowhere fast, and those who put off investment decisions until Brexit now need to buy

The below blue-chip investments are representative of the pricing for quality investments in the current 'post-Brexit' environment. To be clear, most lots sold in auction don't meet our criteria of quality investments and our regular Auction Analysis commentary is not intended to cover those lots; its intention is to give our readers an idea of what good quality, hassle-free properties are selling for in the open market.

So if you are looking for a quality investment, the time may be right. We have a number of deals we can discuss today and will also be looking closely at the next round of national auctions in October. To discuss further and to be added to our active investor mailing list please contact Nilesh stating your requirement.

Lot 88 - Caffe Nero & Flat, Loughton, Greater London

Caffe Nero Loughton

Description: Freehold property arranged over ground and one upper floor to provide a ground floor shops with a 1-bed flat above

Tenancy: Ground floor let to Caffe Nero for 10 years from 22/04/16; Flat let on an AST. Total rent: £58,700

Location: Loughton is an affluent and popular town situated about 15 miles north-east of Central London. High street pitch.

Guide Price: £1m+

Result: £1.05m (5.6% gross)

Our comment: In previous auctions in 2016, a blue-chip shop with flat above like this could easily have flown at sub-5% yield. Instead, the best any 'bargain-hunter' could hope for would have been to buy this around the guide, which is precisely what happened. A good result for both the buyer and seller given the uncertainty. As the market adjusts to new realities we expect pricing for high-quality assets like this is more likely to rise than fall.

 

 

Tesco Express HerefordLot 42 - Tesco Express, Hereford

Description: Freehold ground floor convenience store with ancillary accommodation on the first and second floors on a site of approx 0.15 hectares (0.37 acres) with parking for approx. 20 cars.

Tenancy: Let to Tesco Stores Ltd on a 20 year FR&I lease for £50.00k p.a. from 10/01/2024 with a break on 10/01/24

Location: Residential area on an arterial road leading into Hereford town centre

Guide Price: £790k - £825k

Result: £795k (6.3% gross)

Our comment: This is a nice property in a reasonable location and with the big plus of sitting on a nice site with ample car parking. The rent is also reasonable given its size. Whilst it looks like the buyer picked this up at the reserve price, the price paid was still high given the break clause in 2024 means that there are only 7.5 years term certain.

 

Lot 7 - Cancer Research, Barnet, Greater London

Cancer Research Barnet

Description: Virtual Freehold (999 years) ground floor lock up property measuring ca. 1,200 sq.ft with 1 car parking space to the rear

Tenancy: Let to Cancer Research UK for 10 years from 24/06/16 FR&I for £38k p.a. Renewal of the previous 20 year lease.

Location: High street location in a busy and affluent north London suburb

Guide Price: £600k

Result: £600k (6.3% gross)

Our comment: This looks a good buy - 10 years income to a blue-chip tenant on a fantastic and established High Street. It may not be Freehold but for investment purposes Virtual Freehold is more than adequate. The rent does look a touch high but Cancer Research have been here for a long time and it's clearly worth it for them.

Whilst things always slow down in the summer months, if you are a buyer this time should be used to gear up for what should be an interesting second half of the year. We expect to be busy throughout August and would advise prospective buyers looking for investments both in auction and privately to get in touch in good time so that we can prepare as well as possible for what should be a busy September and October in the property market.

Do also refer to our Post-Brexit Commercial Property Investment Checklist which we recently published in the Finance, Banking & Insurance magazine of the Asian Voice, which is worthwhile reading for any prospective investor.

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