May ’16 Auction Analysis – Shops with Uppers in Demand

Whilst the top end of the commercial property market seems to be have paused until June's Brexit referendum, the private investor end seems to have been totally unaffected with Allsop and Acuitus posting sales above £100m & £50m respectively, putting them well ahead of last year's sales. 

The new tax rules have clearly hit home, with investment pouring into mixed properties, namely shops with flats above enabling buyers to still enjoy the benefit of residential investment without the associated tax hikes.

What it means is that the average investor with ca. £500,000 to spend will struggle to find a shop with flat at good price, and needs to look at ground floor 'lock-up' investments i.e. pure commercial investments.

The below investments sold well over their guide prices, and are located across 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 63 - Shop & Flat, South Birmingham

Mosely

Description: Freehold property arranged over ground and two upper floors to provide a ground floor shops with a 2-bed maisonette above

Tenancy: Let to an individual on a 12 year FR&I lease expiring on 24/06/2018 for £18,000 p.a.

Location: Mosley is a popular suburb of Birmingham located approximately 3 miles south of the city centre.

Guide Price: £225k - £250k

Result: £335k (5.4% gross)

Our comment: Whilst shops and flats in Greater London flew in every national auction (e.g. Lot 93 Finchley - 3.76%; Lot 2 Burnt Oak - 4.4%; Lot 27 - South Harrow - 4.8%), this result was more of a surprise given the location. But as the UK's second city, Birmingham is clearly in demand and investors are prepared to overlook short leases and independent tenants for well-located properties, and like the idea of a whole building being let on a single commercial lease. The result was no fluke either, as the two next door properties also sold (Lot 64 and 65) at 5.5% and 5.9% respectively.

Lot 4 - Tesco Express, Highgate, North London

HighgateDescription: Freehold double fronted retail unit on the ground floor with the 4 self-contained residential flats on the first and second floors sold off on long leases.

Tenancy: Ground floor let to Tesco Stores Ltd on a 15 year FR&I lease for £41.23k p.a. expiring on 24/03/2023 with a break clause on 25/03/2018. Flats sold off for £230 p.a.

Location: Corner position on a neighbourhood parade in an affluent suburb 4 miles north of Central London

Guide Price: £650k

Result: £1.01M (4.1% gross)

Our comment: Highgate is a lovely part of the world, and this property was always going to be in demand, with or without Tesco's in it. One could argue that the rent is low, and at a rent closer to £50k, this is a 5% deal. But still, that's not cheap given that it is a lock-up investment with the flats sold off on long leases and without parking, and demonstrates the appetite for London commercial property.

Lot 26 - Lloyds Pharmacy & Tesco Express, Taverham, Norwich

Taverham

Description: Freehold (*see Our Comment below) property arranged over ground and one upper floor to provide two ground floor shops with two self-contained flats above which have been sold off on long leases. To the front is a car park for 11 cars.

Tenancy: Part let to Lloyds Pharmacy on a 10 year FR&I lease for £15k p.a. expiring on 21/04/2026 with a break on 21/04/2021 and part let to Tesco Stores Ltd on a 15 year FR&I lease for £23k p.a. expiring on 19/09/2030 with a break on 19/09/2025. Flats sold off on a long lease for £50 p.a.

Location: Village 6 miles north-west of Norwich, residential zone on the main arterial road.

Guide Price: £500k+

Result: £625k (6.1% gross)

Our comment: We were looking to acquire this property for a client before auction but were put off by some rather messy legals which basically meant the property is not currently Freehold but is Virtual Freehold. Although this did not change the property fundamentals, the risk of not having Freehold meant future control and re-letting options could be restricted. Clearly the desire for a nice, diversified, blue-chip, lock up investment with parking outweighed this problem and 6.1% gross represents a strong price.

Brexit is certainly a concern for some and for this reason the next auction in July will be very interesting, when the outcome of the referendum is clearly. In the meantime, we are continuing to look for deals privately and have been retained to market a number of properties too, so if you are looking for an investment either privately or via auction, please contact either Nilesh or Vishal and make sure you are added to our active investor mailing list. We can help find you deals and won't let you overpay, we also can arrange finance, recommend a lawyer and assist with the management and insurance once you complete.

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