May ’18 Auction Analysis – Uncertainty forcing Investors to become more Selective

Our below May Auction Analysis blog was published in the Finance, Banking and Insurance 2018 magazine, published by the Asian Voice. To view the original article click here.

The May round of auctions could come to be looked back at as a turning point in the commercial property market. Over the last few years, buoyed by changes to residential property taxes, interest in commercial property has been hot, however after several high profile retail and leisure administrations (or rather CVAs), it may be cooling. Well, at least for riskier, ‘secondary’ lots anyway.

A ton of money still remains firmly in private investor hands looking for a home, and more often than not this will be solid long-dated income, well-located short-lease stock or genuine value-add opportunities.

The top auction houses had mixed results in May, a reflection of this interesting period in the market – whilst Barnett Ross at one end celebrated another spectacular 100% success rate, Acuitus only achieved 60%.

The below investments are representative of each of the three areas investors are targeting in the current market. If you are looking for something similar, regardless of budget, do contact me.

Solid Long-dated Income: Lot 19 (Allsop) – Topps Tiles, Orpington, Greater London

Topps Tiles Orpington

Description: Freehold trade counter investment measuring 5,000 sq.ft. with parking

Tenancy: Let to a subsidiary of Topps Tiles Plc for 20 years from 01/05/2018 for £100,000 p.a. FR&I (no breaks)

Location: Retail park location in a south-east London suburb

Guide Price: £1,5M - £1,7M (6.7% - 5.9%)

Result: £1.78M (5.6% gross)

Our comment: 20 years’ income is rare these days, and although Topps Tiles PLC is not on the hook, its subsidiary is still worth ca. £150m and offers covenant strength. It’s a decent chunk of Freehold property in a busy area – a nice, clean investment which would have sold well below 5% had Topps Tiles PLC been on the lease, and overall looks a good buy that went under the radar amidst all the retail uncertainty.

Well-located Short Lease Stock: Lot 8 – Superdrug, Knaresborough, Yorkshire

Superdrug Yorkshire

Description: Freehold ground floor retail unit with ancillary accommodation on 1st & 2nd floors

Tenancy: Let to Superdrug Stores PLC for 5 years from 11/09/2015  for £25,500 p.a. FR&I

Location: High Street location in an attractive Yorkshire town

Guide Price: £300,000+ (9.2%)

Result: £330,000 (8.3% gross)

Our comment: We acted for the seller on this sub £500k whole building let to a strong covenant in the heart of a small town. With good pre-auction interest we expected a touch more in the room however with just over 3 years left on the lease, many investors may have been put off amidst all the gloom surrounding the High Street. But the eventual buyer did well - he will collect a healthy yield until lease expiry and should Superdrug decide to vacate he will be able to negotiate a dilapidations settlement as well as explore conversion of the uppers to alternative use (e.g. residential).

Value Add Opportunity – Lot 91 (Allsop) – 2 Shops & Offices, Wood Green, Greater London

2 shops & Offices, Wood Green

Description: Freehold mixed investment comprising 2 shops with 1st & 2nd floor offices

Tenancy: 2 ground floor shops let to independent tenants for £85,000 p.a. for over 10 years and offices let for £10,000 p.a. until 2024

Location: Busy High Street trading position in one of North London’s top retail centres

Guide: £1.55M + (6.1% gross)

Result: £1.725M (5.5% gross)

Our comment: We also acted for the seller on this asset which has medium term residential conversion potential for the upper parts. Thanks to its prime location in a major London suburb, the tenant’s covenant strength is not so important. The strong interest for this lot was because it provides both an attractive initial yield as a ‘hands-off’ investment  as well as the option to be more ‘hands-on’ later, meaning that should the market ever turn, the value of this investment, with the correct asset management, certainly won’t.

If you are looking for a 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 July & October auctions. Please contact Nilesh to discuss further or Register with us here.

Auction Analysis FBI 18

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