Arriving at a fair value for an asset is a tricky business at the best of times, doubly so in a period of high inflation, rising interest rates and exchange-rate volatility. Agreeing a transaction or indeed estimating what’s required to turn a profit has become markedly more challenging than at any time since the wholesale corrections of the global financial crash.
In his column this week, Peter Bill quotes analyst Alan Carter of investment bank Stifel, who says “for the first time since 2008, I have sympathy for valuers” as they try to pin down current yield corrections, cautioning that the task has become a ‘finger-in-the-air’ process.
For now, the auctions market – among the most direct ways of putting a price on an asset – remains active despite the headwinds, if Savills’ 4 October sale is any guide. Held little more than a week after the unsettling mini-Budget, it still found buyers for 80% of listed lots.
Savills head of auctions Robin Howeson observes that auctions tend to be “more resilient than the mainstream housing market” in times of economic distress, not least because a rise in business failures also brings distressed assets to market – with the attendant potential for bargains if you happen to have the cash.
Those who have borrowed have so far enjoyed patient lenders, according to Oliver Childs, managing director of online auctioneer BidX1. But he ominously adds: “We expect a move towards foreclosure and increased [auction] stock as investors feel the pressure of these headwinds.”
A complementary note of caution is voiced by Shamez Alibhai, managing director of investment management firm Man Global Private Markets. He says his firm has reined back on investments in land since February: “We have watched in fascination as we lost to higher bids, as we didn’t think bids reflected the very material regime change that’s going on with interest rates now.”
In Scotland, the devolved government has decided to step in to fix rental prices, fearing a wave of price hikes and evictions as landlords attempt to pass on rising costs to tenants. The heavy-handed intervention may well backfire, according to Scottish letting agents.
In the residential sales market, rising mortgage prices and withdrawn offers have collapsed many chains. Data collected by analyst LonRes suggests collapsed sales were 80% higher last month than in September 2021.
That means more people trapped in rental properties for longer – or trying to find one. LonRes reports that the average discount negotiated by prime residential tenants in London turned positive in September – for the first time since at least 2005 – with tenant desperation pushing offers above asking prices.
No doubt sentiment will settle eventually – particularly if the current incumbents of Downing Street can move on from spooking markets to soothing them. But for now, pricing is best summed up as volatile. Bargains for some, ruin for others.
On the topic of uncertainty, Property Week is keen to hear from all parties working in the industrial and logistics sector for our annual census. This is the sixth year of our collaboration with Savills, Tritax Symmetry and Analytiqa to track sentiment across the industrial and logistics sector. Please do complete the survey to share your views.