After a strong year for UK commercial property in 2017, it looks like things may start to change in 2018. Although not as dramatic as the stock market pullback in January, the February auctions were certainly not plain sailing.
Whilst quality investments continued to sell like hotcakes, the less exciting lots left much to be desired. The success rates of the leading national auctioneers were below 2017 norms (when 100% sales rate were not uncommon): Allsop (80%), Acuitus (ca. 75%) and Barnett Ross (ca. 85%).
Nilesh Patel, Director at The Prideview Group, comments “There is still a hell of a lot of cash sitting on the sidelines, ripe for investment. But in the context of rising inflation and interest rates, that cash wants either solid long-dated income or genuine value-add opportunities i.e. investments that permit the investor to ride through the uncertainty ahead.”
The below blue-chip investments which The Prideview Group either bought or sold in February’s auctions are representative of the pricing for quality investments in the current market. You can also view some of their recent deals here and contact them directly to discuss further.
Lot 67 – McDonald’s, Leicester
Description: Freehold city centre restaurant investment
Tenancy: Let to McDonald’s Restaurants Ltd until 2036 (no breaks) for £109,000 FR&I
Location: Good location in pedestrianised town centre
Guide Price: £2m+ (5.5%)
Result: Sold Prior (ca. 4%)
Prideview Group’s comment: “A ‘trophy’ asset like this, let to the likes of McDonald’s for almost 20 years, is like a diamond in the rough. So it was our pleasure to be acting for the sellers on its disposal via auction, after having helped them negotiate a lease extension with McDonald’s. Interest was strong pre-auction but it needed to be a knock-out bid to prevent it from going to the room, and that bid did eventually come from a local entrepreneur.”
Lot 35 – Tesco Express & 2 Restaurants, Ickenham, Greater London
Description: Freehold convenience store, restaurant & residential ground rent investment
Tenancy: Convenience store let to Tesco until 2023, Restaurants for a further 10 years, total rent £89,365 p.a. FR&I
Location: On a busy commercial parade in an affluent north-west London suburb
Reserve Below: £1,250,000+ (7.1%)
Result: £1,405,000 (6.4%)
Prideview Group’s comment: “This investment caught our eye due to its attractively priced guide as well as its location in a part of London in which we are extremely active. With 2 more units let to independent tenants, it’s a nicely diversified lot. We successfully acquired it on behalf of a client who would not have bought at auction otherwise, within our pre-agreed limit.”
Lot 101 – Papa John’s, Newport
Description: Freehold takeaway & residential ground rent investment
Tenancy: Takeaway let to Papa John’s for 15 years from 10/02/2017 (TBO 10th year) for £12,000 p.a. and Flats sold off on long leases for £100 p.a. FR&I
Location: Arterial road in a residential suburb 1 mile from the city centre
Guide Price: £155k + (7.8%)
Result: £168k (7.2%)
Prideview Group’s comment: “It’s very hard to find a blue-chip investment with 9 years’ income under £200k, and when we booked this for sale in auction we expected it to fly. However buyers looking at this price point are typically novice, and could have been put off by either VAT (typically VAT properties do not appeal to those buying in their own names) or the legals (there were some outstanding certifications required for the newly built flats above). Whilst in the context of the wider market this looks (and is) a great buy, it’s always important to analyse each property on its merits.”
For more information about commercial property investment opportunities, either privately or in auction, visit www.propertyinvestmentlondon.co.uk.