DISPOSALS by banks and administrators have fuelled a rise in the amount of commercial property being sold at auction, with small investors increasingly among the buyers.
Figures from property consultancy CBRE show that the number of lots sold at auction has picked up since a collapse following the financial crisis, when the wider property market dried up.
A total of 2,222 lots were sold last year, compared with 2,160 in 2011 and a low of 1,989 in 2010.
John Townsend, executive director at CBRE, said auctions were an ideal way of selling assets quickly in situations such as repossession or restructuring, because a fair price was “achieved and seen to be achieved”.
He said the method was not just used as a last resort, but increasingly out of choice.
“Vendors include banks and receivers are using auctions as a guaranteed method of selling,” Townsend said.
He said that, because the laws in England and Scotland made winning bids binding, sellers avoided so-called “price chopping” by savvy buyers, who in recent years have become adept at finding reasons to renegotiate contracts at the last minute. The practice has plagued unwilling landlords such as banks, which are reluctant to risk having to restart the whole sale process.
In Scotland last week as part of a road trip to publicise the possibilities of selling by auction, Townsend said buyers are also returning to the market. In particular, small investors have become active in commercial property auctions as they seek alternatives to stocks and bonds.
With many of these new landlords putting a large portion of their assets into a purchase, they have sought the security of long tenancies and solid covenants.
He said: “There has been a flight to quality – people don’t want to worry about length of leases or tenants leaving.”
The trend is set to continue, Townsend believes, as more private investors realise the amount of commercial property available to own.
“People are realising they can own the building their local bank is in and that must be very exciting,” he said.
However, average lot prices are around £600,000 so offices, retail space and industrial units remain an investment for the relatively wealthy.
Townsend said that although Scottish estate agents are probably happier to use auctions than their counterparts south of the Border, he will continue to hold the events in London.
“Buyers from the regions are happy to travel to London, but the big players in London don’t tend to come to auctions held further afield,” he said.
CBRE’s figures reveal that property firms have been holding increasing numbers of auctions. There were 62 such events in the UK in 2012, more than any year in the past two decades.
CBRE got into the market 18 months ago when the group took over the auctions team at rival Cushman & Wakefield, headed by Townsend. It had been seeking to negotiate such a deal for a number of years.
Like property markets generally, the auctions market still has some way to go before it is back to pre-financial crisis levels.
In the peak year of 2006, 5,282 lots were offered at 56 events.