While a chill wind has cooled some parts of the global real estate investment markets, particularly those where activity has historically been driven by debt-backed buyers, the mercury has been rising in the auctions this year.
Savills July sale raised the highest amount in the department’s history, with £78 million achieved across 127 lots, including 11 lots that sold for over £1 million each. Demand was present across all sectors, with asset management, development and yield-generating opportunities all selling particularly well.
This picture is not unique to Savills (although naturally we do say that we deliver the best hammer prices for our clients): other auction houses have also reported strong performances. So what do trends in auctions tell us about the wider property market, and specifically sentiment towards commercial-led opportunities?
Bigger lot sizes are going to auction more frequently than they used to. While most commercial assets in the catalogue used to be under £3 million, we now frequently see higher value assets appearing. In July’s auction 112 flats in Bracknell sold for £17.76 million, far in excess of its £6 million guide price. According to EIG data that makes it the second most expensive property ever sold in a UK auction. In June, in a sale and leaseback deal, a 29,000 sq ft industrial unit on a 1.2 acre site in Harlow, with construction underway on an additional industrial/office building, sold for over £5 million.
These sales are illustrative of a shift in the type of buyer now venturing into auctions: while previously perceived as the domain of the smaller, individual investor (although with some notable exceptions), a steady track record of selling bigger lots at above catalogue prices has created a virtuous circle of more well-capitalised buyers looking at auctions as a way of acquiring a decent asset at a fair price. This again has led to larger assets being listed as vendors see they can achieve pricing at a level at or above that they may have secured through a more traditional sales process.
Not only are the lots appearing at auction increasing in value, but also complexity, sometimes involving planning and re-development that require expert navigation. Experienced buyers see the benefits of enjoying an attractive yield from an income-producing asset for several years (assuming the tenant offers a suitable covenant) while planning or other issues are resolved; at the same time, vendors appreciate the transparency and swift sale that the auction room can deliver.
The last point is particularly relevant in a market which has experienced a series of setbacks in the last 24 months, and where many are still feeling their way and uncertain of current pricing in a market which feels like it’s changing on an almost daily basis.
Utilising the auction process provides direct, fair competition and can help drive prices upwards based on the confidence present in the room (or online) on the day. It can also ensure an asset reaches a wider pool of buyers, rather than those pre-qualified or targeted through an off-market sale process.
It may be the ‘ground floor’ of commercial property investment, but there has been no shortage of optimism in the room.
Further information
View the catalogue or register to bid at Savills auction on Tuesday 4 October 2022 or contact Savills Auctions
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