March ’16 Auction Analysis – More buyers moving from Residential to Commercial

Hot off the heels of the new & immediate Stamp Duty changes for commercial property, the March round of national auctions run by Allsop and Acuitus were very strong indeed.

The new rules mean that buyers of commercial property worth up to £1.05m will pay less in stamp duty, and with 90% of transactions being below this level, this is good news for most of our private investors.  When taken in conjunction with the 3% increase in stamp duty on buy-to-let residential property, it was no surprise that former residential buy-to-let investors turned up in their droves at this week's commercial property auctions.

The below investments sold well over their guide prices, and are located in all corners of the country. These are similar to properties we can source privately, so this gives an insight into what the open market is paying for such investments. To be added to our active investor mailing list please contact Nilesh stating your requirement.

Lot 23 - Iceland, Gravesend, Kent

Iceland, Gravesend

Description: Freehold 14,000 sq.ft. property arranged as a supermarket on the ground floor and dentist on the first floor with a large car park to the rear for approx. 50 cars.

Tenancy: Let to Iceland Food Ltd on a 25 year FR&I lease expiring on 27/02/2030 for £108,759 pa with fixed 5 yearly rental increases. The first floor is sublet to a Dentist.

Location: Gravesend is 26 miles east of Central London in Kent. Corner property in the town centre.

Guide Price: £1.525M

Result: £2.31M (4.7% gross)

Our comment: This is a very strong price for a property that is not within London's M25. The property is very well secured by a lease with 14 years remaining, but the buyer paid a premium to get a Freehold whole building which sits on a large plot of land, and therefore offers the additional comfort of redevelopment potential if Iceland vacated and the property could not easily be re-let in 2030.

 

Lot 98 - Iceland, Oswestry, Shropshire

Iceland, Owestry

Description: Freehold 9,000 sq.ft. detached, single storey supermarket with car parking for approx. 41 spaces.

Tenancy: Let to Iceland Food Ltd on a 25 year FR&I lease for £93,082 until 28/02/2030 with fixed 5 yearly rental increases.

Location: Oswestry is a market town close to the Welsh border. Town centre location.

Guide Price: £1.3M

Result: £1.47M (6.33% gross)

Our comment: In the current market, this is a solid price for a location which would be unknown to most investors. The Iceland lease with ca. 14 years remaining is a rare commodity in today's market as blue-chip tenants are signing shorter and shorter leases. Being a commercial unit only, this property would suit a SIPP (Self-Invested Pension Plan) buyer. And as with the above property, the large plot of land adds to the feeling that the site has alternative potential worse comes worse, even if residential values in this location may not be so strong.

 

Lot 29 - Barclays, Haltwhistle, Northumberland

Barclays Haltwhistle

Description: Freehold 1,500 sq.ft. bank investment with the residential accommodation on the 1st floor sold off on a long lease.

Tenancy: Ground and part-first let to Barclays Bank Plc on a 20 year FR&I lease for £10,250 p.a. until 15/06/2027 with a break on 15/06/2022. Remainder of first floor sold off on a long lease.

Location: Haltwhistle is a small tourist town near Hadrian's Wall on the Scottish border. High street location.

Guide Price: £130k - £135k

Result: £170k (6% gross)

Our comment: This is a property we acquired for our client back in 2007 when Barclays Bank were offering some fantastic 20 year leases by way of sale and leaseback. Having enjoyed the rent to-date and some very cheap finance we arranged, we advised them that with just 6 years until the break clause, the time had come to consider selling, given that the location is far from any major settlement and is unfamiliar to most. It was clear from the beginning that the size of the lot, it's good micro-location and sustainable rent level meant that it was going to be looked at by many of the former residential buy-to-let investors now pushed into commercial property. But after strong bidding, the eventual buyer came from nearby Carlisle and no doubt has plans for the commercial unit in case Barclays do vacate.

 

Leases of 10 years or more to blue-chip tenants are getting more and more desirable as they become more difficult to find. If a property is freehold and includes the whole building and perhaps some car parking, then the redevelopment appeal of it will add a premium to the price. Yields of 5% for this kind of stock are therefore not surprising.

At the smaller lot sizes, say ca. £500k, the stamp duty saving vis-a-vis residential buy-to-let property is at its highest, and investments at these levels are highly sought-after. The new breed of investors entering the market are risk-averse and need quality investments with long and secure leases - which we can deliver.

If you are new to commercial property and want to invest in a secure, blue-chip investment with say a lease of 10 years plus, below or above £1m, please contact either Nilesh or Vishal and make sure you are added to our active investor mailing list. We can help find the deals and also help arrange finance, recommend a lawyer and assist with the management and insurance once you complete.

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