COMMENT: One of the earliest pieces of advice that I picked up as a young auctioneer was that there are always buyers in the market, regardless of conditions.
As the late 1990s moved into the early noughties, debt was in plentiful supply and the auction rooms enjoyed a frantic trade. I worked a great deal with investors from the Republic of Ireland and Northern Ireland. Those in the south were enjoying a currency and yield arbitrage with the UK. With prime Dublin at 2.5%, the 4-5% on this side of the Irish Sea was too welcome a distraction. Their local bank managers could not have been more supportive and welcomed their ever bigger bonuses.
Basic economics ultimately blew a hole in that approach – borrowing at 5.5% and buying at 4.5% ended up being called the Global Financial Crisis in 2008 and 2009, and so we looked for, and found, new buyers.
A safe haven
The euro was beginning to undergo some stress, and denominated investors were quick to recognise some of the value that London offered back in 2010 and moved their money into the safe haven that sterling represented.
Over the past ten years, thanks to quantitative easing and low interest rates, the market has been buoyant, and given extra heat by the thirst for the best UK assets from buyers in Asia and the Far East.
With the second month of lockdown now completed, what have we learnt about buyers and their investment appetite in these straightened times?
The last three weeks of March 2020 were a roller coaster of events. We moved our March auction to an online-only format, and we took the market with us. Our May auction, also online-only, achieved a success rate of 88% and raised £40m.
Capital still flowing
An analysis has revealed that capital is available, even with only minimal conventional bank lending. Our bidding reports show that assets with a good location, sustainability of income and lease length, along with alternative use, continue to find buyers and generate the strongest competition and interest, even in these unprecedented times.
Lot 9 in March, a retail investment let to Joules in Horsham, a solid home counties market town in lockdown, was one of the most heavily competed-for assets. A local property company fought six other bidders to buy this investment at £475,000 – nearly twice the guide price.
Lot 87, a Lloyds Bank premises and flat in Hayes Park, sold at a noughties-type yield of 4.7%, at £801,000, to a west London property company that bid against five other parties.
Lastly, lot 1, a Boots pharmacy investment, let for another 40 years in Halstead, Essex, was again competitively fought for and sold to a private Midlands-based pension fund.
The May auction saw three times the level of bidding seen on the most popular five lots in the March sale, and our regular local buyers were joined by investors from as far afield as Poland, Dubai, Hong Kong and the British Virgin Islands.
Buyers of all guises bid for lot 34, with more than 50 parties carrying out legal due diligence. The price for the Premier Inn hotel in Halifax, let on a geared and turnover basis until 2064, was driven 30% above the guide to £925,000 – a modest yield of just 3.8% net.
Looking ahead, as others divest themselves of high street retail, as they surely will, more buyers will emerge. Our active pool of buyers represents just 1% of our database, and while many are waiting for their rent cheques to clear, based on this evidence there will indeed always be buyers in the market.
