More sparkle in the 2011 market

By Charlie Jacoby, January 27, 2011
Stamford Hill pub, sold for £1.05m though Acuitus at a yield of 6.3 per cent

Stamford Hill pub, sold for £1.05m though Acuitus at a yield of 6.3 per cent

When the champagne corks went pop at midnight on December 31, 2010, it was a poorer vintage than usual among property auctioneers - and the clink of glasses was to salute the future, with no more than a nod to the past. For 2010 was not a great year. But 2011 is looking stronger. "This year should offer real opportunities in the auction room for both buyers and sellers," says Richard Auterac, of Acuitus. "The gulf in the expectations of the two sides of the auction equation that stalled the sale of some assets in the summer is now narrowing. Today, buyers have a clearer grasp of what type of assets they wish to invest in and sellers know what prices are achievable."

Felix Rigg of King Sturge believes there is scope for both pessimism and optimism. "Funding will continue to be difficult for buyers," he says. "However, there will be a greater amount of debt recovery-related stock coming to the market and this trend should continue into 2012 and beyond."

Mr Rigg maintains that, afflicted by the events of 2007-2008, banks have little choice than to continue with a much more cautious approach to lending. "For the foreseeable future, I don't expect lending to return to the levels seen from 1997-2007, therefore all markets and sectors will have to continue to adjust," he says. "Secondary and tertiary property book values need to fall further. On prime stock, demand will continue to be bolstered by the availability of some bank funding, so prices should continue to hold up."

Mr Auterac says sellers can be encouraged by the many genuine cash buyers who are prepared to compete strongly for the right type of assets.

"As was shown by the autumn and winter sales, when a property matches investor criteria, demand can be exceptionally high," he says. "For buyers with cash and some funding, the opportunities remain exceptional. Property yields remain attractive compared to other investment media, while a shortage of debt funding means there is not the level of competition that was seen at the height of the market.

"The unwinding of many receivership and distressed debt situations will undoubtedly bring more good-quality product into the auction room and this will provide excellent strategic openings for investors looking to build their holdings."

When it was good in 2010, it was very good. When it was bad it was hard work.

Allsop's final commercial auction of 2010 achieved 80 per cent success from 103 lots, with £58 million raised.

"The initial 80 per cent success is the highest auction-day result we have had since May," says Allsop's Duncan Moir. Allsop commercial sold 582 lots in 2010, almost a quarter of which were for £1 million or more, and it raised £382 million with an overall success rate of 83.1 per cent. This compares to 2009, when it sold 615 lots and raised around £450 million with a combined success rate of 87.5 per cent.

Allsop's largest commercial lot in December was a shop and office investment on Cornhill, London EC3, let at £126,745 a year, which sold for just under £2 million, showing a yield of six per cent. This was one of 39 lots that achieved yields at or below six per cent, including 14 bank investments which sold at an average lot size of £691,321.

Allsop residential also ended 2010 on a high, with a £45.7 million residential auction selling 85 per cent of all lots offered, bringing the residential sales total for the year to £335 million and 88 per cent from 2,089 lots. In 2009, the figures were £330 million and 87 per cent from 2,049 lots.

Gary Murphy, at Allsop residential, says: "It's encouraging to see that buyers of residential property are happy to turn out in large numbers to compete so aggressively. It's all about pricing of course. Value for money is key to success today. And competition wasn't limited to the perceived safety of London and the South East. Regional lots drew some strong interest, none more so than 100 acres of grazing land on the fringe of Dunblane, Scotland. Guided at £300,000 to £500,000, after 20 minutes of tense bidding it was knocked down for £1.11 million. It was also good to see owner occupiers bidding confidently. They are giving buy-to-let investors a run for their money."

Highlights of the sale included a freehold, broadly triangular site of more than half an acre in Wealdstone, Middlesex, with potential for care home development among other uses; this sold for £1.4 million.

Many auctioneers expect little change this year from the pattern of 2010. David Margolis of Cushman Wakefield says: "I think it will be similar to last year. There is money out there, but investors are very select. It's their own money, not the banks' money they're spending."

Cushman & Wakefield's December sale scored an 87 per cent success, with three lots sold for more than £1 million. Among them was a unit let to a Coral bookmaker on Station Road, Harrow. It produces £73,000 a year in rent and went for £1,075,000.

John Barnett of Barnett Ross agrees. "There's still little money around. The banks aren't lending. People with money are spending more on better properties. There's a flight to quality. It's only the better stuff that will go up. Like the people who stay in five-star hotels who won't stay in three-star hotels, the people who want property want good-quality property. And the people who have the better-quality lots don't want to sell. People will hold their money back until they get the right property. They'd rather leave their money in the bank and stick with the one per cent than, as they see it, lose money."

Barnett Ross's December auction raised £14,321,500, with a success rate of 88 per cent. Top lot was 726-732 Wilmslow Road in Didsbury, M20, which went for just under £2 million. It is a shop unit let to Marks & Spencer and produces around £136,000 a year.

Philip Waterfield of Strettons also believes 2011 will mirror much of the 2010 auction market. He says "Transactions tend to be slow, reflecting the general market and limited access to mortgage finance."

As well as its usual range of property transactions during the year, Strettons completed two hotel transactions for Travelodge, along with sales of several surplus police stations, D1/D2 properties and several large industrial properties in Harlow and East London.

"There is still reasonable underlying activity for all property types, but until the banks start to lend more freely, our agents predict a cautious 2011," says Mr Waterfield.

Strettons' December sale saw a clutch of lots sell for more than £500,000. Top lot was 19 Northwick Circle in Harrow, Middlesex, which went for £1.375 million against a guide price of £800,000-£825,000. It is a large detached house half a mile from Kenton station.

Lambert Smith Hampton's work is mainly for local authorities. LSH's Richard Argles says the central government squeeze on the finances of local authorities is causing them to put more property up for auction. "We have more than 100 lots in our February auctions," he says. "We are expecting a tremendous amount more work in the May catalogue at the start of the new financial year."

"There is a considerable amount of cash around that buyers have in their banks on very low interest rates and they feel they will make more by buying former local authority property," says Mr Argles.

Whatever the property sector, for James Cannon of Cannon Capital, finance remains key. "It is dictating the nature of auctions," he says.

"The market is trading at 50 per cent of the volume it was in 2007. Average lot size has slipped, particularly in commercial auctions. People are not relying on finance to purchase. They are using their own money and maybe refinancing purchases later."

Mr Cannon identifies two kinds of lot that are easy to sell: long-dated income from good covenants and anything with a high return. However, what he calls the bread and butter of the auctions market - typically a unit let for another seven years to a local shop in a market town - is not popular. Nor are the larger lots easy to sell unless they are easily fundable.

Mr Cannon says: "2010 was the year of the tyre-kicker. There were an awful lot of people in property companies thinking of selling who didn't. A lot of agents did a lot of work for quite low reward. January this year has seen a strong sense of realism and people wanting to go on and do some business. Our work in hand for the first quarter of this year is the same as for the whole of last year."

Robin Cripp of Andrews & Robertson says: "It's very much a tale of different parts of the country. Anything round London is going well. You go up to the North of England and it's a lot more difficult up there. Our main business is the South East of England and we are very lucky to be where we are.

"The enthusiasm is there, but buyers are having trouble getting the money from banks. There is a certain number of non-property people coming back into the market looking to purchase buy-to-let flats and houses. It is easier to raise finance on that than on vacant property."

Mr Cripp expects the flow of money to increase later in the year. "Banks make money by lending money, but at the moment they don't seem to have the appetite. Once one of them starts lending, the others will follow suit," he says. "Property is always reliant on bank finance. If you get the pricing right, people can raise the money. And buyers can do very well now if they have got the funding."

Andrews & Robertson's December sale achieved a 75 per cent success rate across 66 lots. Top lot was three flats above shops on Green Lanes, Haringey, which went for £500,000. It has more than 100 years left on its lease. Joint agent was Paul Simon.

The last Savills residential auction of the year, on December 7, raised £25.64 million, with an overall 82 per cent success rate.

Savills auctioneer Chris-Coleman Smith comments: "The success of the auction is due to the wide spectrum of properties that we have available, with prime central London lots attracting interest from both local and international buyers."

Two lots in Mayfair were snapped up. Next to Shepherd's Market, a two-bedroom flat with direct access to a communal roof terrace and a lift, was guided at £695,000 and sold for £785,000. Another two-bedroom flat, part of a period building with access to the gardens of Green Street, was guided at £1.1 million and sold for £1,195,000.

Also in Savills' sale, a two-bedroom apartment near Abbey Road Studios, with communal swimming pool, lift, 24-hour porter and underground parking was guided at £695,000 and sold prior to the auction. A studio flat on nearby Abercorn Place, in need of modernisation, was guided at £145,000 and sold for £176,000.

Athawes' December auction saw a first- and second-floor flat in South Ruislip, half way through a 99-year lease, sell for £89,000. Athawes' Paul Stevens says: "December was particularly quiet. Thinking about the South East, shortage of supply will continue. The spring auctions will show positive signs. That's the indication we're getting from buyers and sellers, though there is still an air of uncertainty."

Brendons' December auction saw a vacant three-bedroom semi on a large plot in Harlington sell for £242,500.

Phil Arnold of Brendons says: "The second half of last year showed a vast improvement on the first half, was a lot more buoyant, and we're expecting it will improve again this year."

After several years when new auction houses popped up like snowdrops each winter, 2011 is fairly quiet. There is just one to report - auctioneer Andrew Binstock is now part of Auction House UK, which has 28 branches around the country.

"Last year, Auction House sold 1,066 properties, the fourth largest number of properties sold by a single auction house in the UK." And to show the increasing strength of the market, last year Auction House held 108 sales and it has 130 in the diary this year.

For buyers and sellers, 2011 will be a year of opportunity for property owners to sell into a more certain market where there is a greater consensus on value.

That is the prediction from Mr Auterac. "For some assets where occupier demand is weak and lease expiries are looming, we do not see prices recovering quickly and there may be further falls in value," he says. "However, the year will undoubtedly bring a large number of properties into the auction room that represent exciting prospects for investors.

"The property investment market is undergoing major reconfiguration and history may show that 2011 was a year of exceptional opportunity."

Last updated: 12:24pm, January 27 2011