The front line has taken on a new meaning in the past few months, and while those essential workers are at the forefront of keeping the country healthy, the private investor community remains keen to buy assets and gain income.
For the private investor who has invested for income, lockdown has hit their incomes in two ways: their rental income and from dividends, with 45% of UK companies cutting or halting their dividend payments in early April.
Investors such as charitable foundations have cash reserves and these buyers are becoming more prominent in our sector, with a very clear focus on buying assets that offer sustainable income. In this respect they have focused their minds on the basic human needs of health and convenience, alongside traditional grade-A covenants and long leases that are always popular, but have lately become rarer commodities for private investors to access.
Investment in healthcare assets can be interpreted in many ways, but for those with a budget of under £5m, it means pharmacies, small GP practices, opticians and dentists that may or may not be on the high street.
Pharmacies have, from the start of the pandemic, become even more of a focus of community life. To some, they provide a lifeline and have a repeat customer base ranging from young families to the elderly who need their regular prescriptions, which underwrites the business model. In easier times, they will quickly morph back into high-street shops selling high-margin cosmetics and toiletries.
Licensing is another key factor – the number of pharmacies and doctors’ surgeries within an area is regulated by the NHS and this tight governance means the creation of new licences is strictly controlled. From a landlord’s perspective, this supply limitation provides stability and the prospect of mid- to long-term rental growth.
Our recent auction results reflect this demand, with some of the strongest yields on the day being paid for Boots pharmacies.
In our 31 March sale, lot 1 (in Essex) and 2 (in Surrey) were both let to Boots and sold at yields of 4.4% and 4.1% respectively, reflecting little sign of weakness in high-street sales.
Convenience stores – standalone and as part of petrol stations – also remain highly desirable to investors. These assets combine key features that appeal to the private investor: prominent roadside frontage, an inelastic demand for fuel – carbon-based or otherwise – and convenience shopping.
We have sold £18.58m of roadside and in-town convenience stores in the year to date, one highlight being a petrol station and store in Somerset that sold for £1.28m following intense competition. With the lease guaranteed by a company that has a net worth of over £90m, this gave the buyer a 5.25% yield with security of income until 2034, plus 2.5% fixed annual rent increases.
Since lockdown, the standalone convenience store sector has seen yield compression in the light of this intense demand, as we achieved prices of 5.2% for shorter income where break clauses are as early as 2024. One example is a former pub, now a standalone Co-op, which sold for £810,000 in May.
Few other sectors can show this level of demand in these straitened times. And who can doubt the instinct of the private investor to protect their ability to derive income?
George Walker is a partner and auctioneer at Allsop