Retail market may have hit bottom as smaller units rise in value at auction
IPD, in association with Acuitus and EIG, last week launched a new Retail Auctions Index, showing that values for retail property sold at auction during the first quarter of 2012 rose by 1%, compared with a 1.3% fall in values for commercial retail units. This may be an indication of the bottom of the retail market, IPD says.
A retail property for sale at auction delivers almost a third more income than an average retail unit, says IPD, because it is generally cheaper than the market value and thus offers considerably better value to whoever buys it. Activity at retail auctions is increasing despite the high street’s woes: auctioneers believe that new investors are finding this an easy way to buy into property. And as major investors show an increasing trend of sticking firmly to large shopping centres, high-street shops that are more management-intensive are being left to these smaller investors.
Two thirds of the properties sold in commercial auctions are retail properties. “The average yield (essentially income per year) on a retail unit bought at auction is now 7.8%. This is 190 basis points higher than in the wider market, or a difference of 32%,” IPD notes. IPD says the new index will provide greater transparency on price movements observed in UK auction rooms. It says the auction market reflects the same investment characteristics as the wider, normal market, but the smaller lot size means that deals are more likely to be affordable to small investors.
Richard Auterac, chairman and auctioneer at Acuitus, said, “The smaller, cheaper units offered at auction are possibly the best indicators of investor confidence in the high street. Despite widely negative reports concerning the UK retail sector in the last year, smaller investors are seeing these units as excellent value, and offering an extremely competitive return. To put it simply, the price seems to be very much right.”
Greg Mansell, senior research manager at IPD, said, “In the commercial market we have seen a considerable transition where investors have sought security through larger investments occupied by larger businesses. In the auction room a different story has unfolded. Smaller investors are buying smaller units, which is vital for independent retailers looking for flexible leases and a landlord willing to actively manage the asset.
“Price movements in the auction room are closely linked to changes in consumer sentiment, which is why prices fell harder than in the wider market in recent years, but now offer good value today,” he added.
