March ’18 Auction Analysis – Investors Starting to Look at Shorter Leases

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March was an interesting time for the UK auction market, and including residential property, saw the highest number of lots put under the hammer in March since 2008 (3,263 lots).

A decade ago the economy was in the midst of a credit crunch, currently we are in a period of uncertainty for both commercial and residential which may be helping buyers and sellers agree on a price. According to EIG, the overall sales rate for all commercial auction lots was a healthy 75.6%, but as we pointed out in our last blog, not as high as what we saw in 2017.

In our opinion, solid long-dated income or genuine value-add opportunities remain the order of the day i.e. investments that permit the investor to ride through the uncertainty ahead. Quality properties let on short leases at sustainable rents also can no longer be ignored, given the increasing scarcity of long leases.

The below blue-chip investments are representative of the pricing for quality investments in the current market. Buyers buying at auction should proceed with caution – remember you can always contact us for expert advice. We are marketing a number of lots in an auction in May including a building comprising two shops and offices in Wood Green, London (£1.55M+, 6.1%) and Superdrug in Knaresborough (£300k+ / 9.2%).

Lot 15 – Integrated Dental, East Harling, Norfolk

Dental, East Harling

Description: Freehold dental surgery investment with 5 parking spaces

Tenancy: Let on a lease guaranteed by Integrated Dental Holdings Ltd until 2024 (TBO 2019) for £14,000 p.a. FR&I

Location: Residential location, only surgery in the village

Guide Price: £150k+ (9.3%)

Result: £245k (5.7%)

Our Comment: It was our pleasure to market this dental surgery in auction given our experience dealing with medical investors. I don’t think anybody expected this to sell for nearly double its guide but on reflection, it ticked a number of boxes: small lot size, Blue-Chip tenant, no VAT, whole building with car parking (and potential for alternative residential use) and the only dentist in town. With a tenant break clause in just a year and a half, investors could be forgiven for passing over this one, however, the trading potential of the unit was clear and several dentists and private investors were involved in the bidding.

Lot 6 – Gregg’s, Bromley, South London

Greggs, Bromley

Description: Freehold shop with self-contained flat above

Tenancy: Let to Greggs Plc for 10 years from 16/11/2016 (TBO 16/11/2021) for £24,500 p.a. FR&I

Location: Commercial parade in a densely populated residential suburb of London

Guide:  £375k – £400k (6.1%)

Result:  £502.5k (4.9%)

Our Comment: At a guide of 6% there was no doubt this lot looked good – small lot size, established South London suburb, Blue-Chip tenant and most importantly a shop and flat (i.e. not subject to residential stamp duty and taxes).  In spite of the break clause in 3 years’ time, we bid on this lot for a client who would have been more than happy to buy this at around £450k / 5.5%, unfortunately, the bidding was too strong and it sold below 5% which on reflection is probably still not the worst of buys!

Lot 22 – Sainsbury’s Local, Stourbridge, West Midlands
Sainsburys Local, Stourbridge

Description: Freehold convenience store investment on a site with 20 parking spaces

Tenancy: Let to Sainsbury’s for 15 years from 20/08/2012 (TBO 20/08/2022) for £68,760.43 p.a. FR&I with inflation-linked reviews.

Location: In a neighbourhood shopping area within a residential location with little competition nearby

Guide Price:  £925k + (7.4%)

Result:  £960k (7.2%)

Our Comment: This lot fits the bill of the ideal convenience store investment and having bought over 100, we would know. It’s a densely-populated residential location, on a former pub site with ample parking and complemented by some neighbourhood commercial tenants including a Post Office and Doctor’s Surgery. The Sainsbury’s covenant is also fantastic, the only drawback being the tenant break clause in 4 years. We advised our client to look beyond that as long as they bought this for a 7%+ yield, and after successfully buying it in the room we also arranged some excellent financing for them as well.

If you are looking for commercial property investment by auction or privately we can assist. We have a number of off-market investments available now and will be actively buying and selling in the upcoming March auctions. Please contact us here to discuss further.

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