In the excellent IPF report, The Size and Structure of the UK Property Market, the total investment stock of private investors and private property companies in 2017 was estimated at £72bn – not an insignificant amount, as this represents about 14% of the total value of UK commercial property stock held by all types of investor.
Almost half of all commercial property investment undertaken by private investors is conducted through the auction room. Last year, that amounted to around £700m of buying.
It’s important that we, as a sector, make a case for private investors to buy at auction – and assist an increasing number to do so.
If there was one overriding characteristic of property investments that would appeal to the private investor, it would have to be income return. History shows that what attracts buyers is the ability to generate sustainable income from the assets they buy and to add value to properties by making enhancements.
This attraction has been accentuated in recent times by volatility in equities markets – plus a growing feeling that the bull run in markets may be coming to an end – and the meagre returns from bonds and gilts. Property, by comparison, has continued to deliver and, of course, has the added dimension of being a physical asset. In terms of investor confidence, this point should not be underestimated.
A continued regime of low interest rates has also meant that investors can finance auction purchases on terms that generate a return arbitrage between the cost of holding the asset and the income it is producing.
If you put this case to most private investors who have yet to invest in commercial property, they invariably see the logic, but then will almost immediately ask: “So what should I buy?”
This is when the conversation switches from the macro to the micro. The first question in the sifting process is whether they want to be a passive, ‘rent collector’-style investor or if they see themselves as an active asset manager.
The answer to this question will sort any auction catalogue into two groups. Investors also have to decide what sector they prefer or whether they are ‘asset agnostic’. Similarly, identifying whether they want to ‘buy local’ or are happy to buy properties whatever the location (as long as it suits their requirements) produces another refinement of opportunities.
It was precisely because of this decision-making process and the investment criteria synthesis that it ultimately generates that Acuitus enables investors to create buying profiles on our website that automatically sift available assets. We can see from the data these profiles create that – while there are exceptions – investors tend to ‘repeat buy’ the sort of assets they have invested in before. And why wouldn’t you? As with other investment media, as you own more of a particular type of asset, you get a better eye for it and have a better feeling with regard to when to hold and when to sell.
Once invested, the returns to investors are evident and their appetite is clear. So, from an income-return perspective, the case for commercial property investment remains compelling, but investors first need to answer a series of questions about their own aims rather than immediately focusing on the characteristics of the properties up for auction.
For many existing investors, property is seen as a rewarding long-term investment as part of a diversified portfolio. Lifting the veil on this investment medium and improving understanding of it will allow investors to make informed decisions.
Richard Auterac is chairman of Acuitus
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The case for buying at auction