Strong investor demand for retail property

Retail property is currently one of the hottest sectors in demand from investors as they seek higher yielding assets that are benefiting from an improvement in consumer sentiment.

Consumer spending is continuing to drive a recovery in regional property values, as reflective by Allsop’s latest commercial auction, which topped off a record year for the company, taking the total raised in 2016 to more than £600m.

In the firm’s final commercial auction of the year earlier this month, Allsop raised over £117.6m, a year-on-year increase of almost 100% on the £59.8m sold at the commercial auction held in December 2015, thanks in part to the fact that the average lot size was £691,000 in 2016, compared to the average lot size of £620,000 last year.

A total of 39 lots sold at over £1m either prior to or at the auction, representing 23% of the catalogue, against the 2016 average of 16%.

The largest lot to sell was Lot 13, a retail parade on Kentish Town Road, which sold for £4.06m from a guide price of £3.8m, reflecting a net yield of 5.3%.

Major competition for good locations resulted in average margins above the reserve prices increasing to 27%, up from an annual average of 16%.

Industrial investments made up 13% of the catalogue, compared to an average of 7% in the year to date, and the sector saw strong demand, with 82% of lots in this sector selling.

But ultimately it was retail property that stole the show.

Yields for well-let, grade A retail investments moved in to 6% from an annual average of 6.3% and mid-range, grade B retail remained unchanged at 8.2%. Overall retail yields, including multi-let buildings and parades, moved out slightly to 7.9% from 7.6%.

Duncan Moir, partner and auctioneer at Allsop, commented: “It was a buoyant room, with strong competition in a good number of sectors. The private investor clearly has deep pockets. There remains some price sensitivity in secondary areas, but the sale levels for better locations are very well supported.”