Yesterday I attended the Acuitus/IPD auctions update for 2013. It was a very interesting morning that showed the renewed appetite of investors to enter the market but the issue of a very hot market and a lack of stock.
Anuj Patel of IPD kicked off with lots of data and graphs. The main stats were that their All Property Index (returns) was 10.5% in 2013 and Standard Shops 9.6%. Income return is driving these numbers. Other factors coming into play during the year were yield compression but also minimal rental growth. One of the key indicators to me was that in December 2012 140 properties sold at a value of £68.7m but in December 2013 this had risen to 202 properties at a value of £122.7m. A good year for auctioneers!
As with anything the difference between prime and secondary (how does one define such labels?) was significant at 4.34%. This is reflected by the LDC data when you look at vacancy rates or indeed employment and other key datasets.
Stuart Buchanan from Acuitus Finance was next up. His key observations were also very interesting in that he reported that there is one new lender in the market every week. Banks no but other funding sources yes! One significant new kid on the block is ‘crowd funding’. You can now even see adverts for crowd funding in London’s tube stations! The lending market is seeing increased segmentation along with more specialist approaches. This is where banks caught a cold in the past and hence no surprises here and good to see lessons have been learnt. A significant change is the growth in ‘interest only’ lending whereas in the past large capital requirements existed.
Finally, Richard Auterac from Acuitus was next up but without his gavel! Lack of product is a big issue for the market as demand far outstrips supply. He also discussed the role of portfolios – do they attract a discount or premium? Richard’s view is that they result in a discount! Portfolios in my view can quite often hold a multitude of sins but provide packaging to dispose of ‘dogs’ alongside ‘gems’. Institutions are moving away from smaller properties (min £10m), which is a great opportunity for the private investor. Whilst the supply of stock is up 78% it is still dominated by distressed stock.
Sale and leaseback is back on the rise and this was reinforced this week by The Co-Op who is putting £100m into this market. Increased confidence? Yields between prime (6%) and secondary (12-13%) are still significant yet some low yields are being achieved for the right properties. Examples (net initial yield) are below:
Prezzo in Dorchester – 4.85%
McDonalds drive thru in Romford – 4.77%
Ben Sherman in Islington – 5.1%
Barclays in Bridport – 4.73%
Halfords on a retail park in Enfield – 5.4%
Petrol station in Bury St Edmunds – 5.9%
Screwfix in Glastonbury – 7.03%
Co-op supermarket in Norwich – 5.87%
And the big one……
Mecca Bingo in Scarborough – 15.54%
I was then asked to give my view on what I heard – it follows the reduction in vacancy rates but needs to take into account change in tone and location preferences away form the weaker town centres. The elephant in the room for me is how will everything we discussed change with a change in business rates that would have to see increased rates in the south and reduced rates in the north?
We have some exciting plans with Acuitus to better inform the private investor and auction room overall but details will follow in the next couple of months. Watch this space!