Property auctions present opportunities for buyers. During the pandemic, buyers that hadn’t bought at auction before caught on to this. Auction Houses London saw sales rise during the lockdown months. All its property auctions sold at least 81% of their lots between May 2020 and March 2021.
These sales are not limited to residential properties. Commercial or semi-commercial property can also be auctioned. These can offer possibilities for those planning to expand a business, renovate an office or convert a space.
Auctions can provide quick access to commercial property, especially when compared to private sellers. However, investors will need to prepare for the challenges they bring. To help with this, we have broken down what you need to know.
What’s the difference between residential and commercial property auctions?
From a bidder’s perspective, there are few differences between residential and commercial auctions. Auction houses will publish their catalogues in advance. A guide price is listed, showing what the property could be worth. There will also be a reserve price. This is the minimum the seller will accept. It should be clear to buyers which properties are commercial and which are residential.
The buying process will feel like it’s gone by in the blink of an eye. Generally, completions are done within 28 days.
Auctioned Properties may offer untapped potential. They may be unusual, old, or even decrepit. For investors willing to put in a bit of time and effort, decent returns could be down the line.
Source: Auction House
How to prepare for the bidding
As with all areas of life, preparation is key. Commercial properties may have more variables than their residential counterparts. You will need to be sure of why you’re investing and what your end goals are. Ask yourself: Are you planning to utilise the property for advancing your business prospects? Do you want to sell it on for a profit? Are you renting it out?
Where possible, buyers should visit a property before bidding. Attending a few auctions to get a feel for them could also help. When you’re prepared, you’ll need to get ready for the actual bidding. Arriving early will allow bidders to get settled. It will also allow them to catch up with any last-minute changes.
If you’re attending in person, you can simply raise your hand to make a bid. A representative can also bid on your behalf. Often, this will be an agent or solicitor. You will need to set a maximum amount you’ll go up to. Online and telephone auctions may also be an option. All of this should be checked with the auction house ahead of time.
Once the dust settles, successful buyers will need to sign a contract and cover a deposit. Usually, 10%. Remember, from the moment the gavel drops, the property is your responsibility.
Source: Auction House
Key things for investors to consider – before and after an auction
You should also focus on the property’s background. For instance, office blocks are likely to have completely different structures to restaurants. Also, it may be easier to convert shopping centres into flats than a factory. The location of the building is also important. Petrol stations near industrial estates may have limited scope for development, compared to pubs in the middle of a high street. It’ll be of little use to think of these things after a knee-jerk purchase.
Commercial property owners should plan beyond the auction too. You may be able to claim capital allowances when buying certain assets to use in a business. This includes equipment and machinery.
Business Premises Renovation Allowance will provide 100% relief on certain spending in disadvantaged areas. Land Remediation Relief may also be available to those working in contaminated areas.
On the flipside of this, commercial investors may face construction, maintenance, and environmental compliance costs. This is before “normal” elements such as stamp duty and planning permissions are factored in. Investors may want to consult with tax and other experts to ensure they’re getting the most from their new commercial purchase.
Source: gov.uk – claim capital allowances, gov.uk – Business Premises Renovation Allowance, gov.uk – Land Remediation Relief
Why should you care about any of this?
Commercial property demand is rising. Allsop, a major property auction house, sold £584m worth of commercial property in 2021. A rise of 30% year-on-year. Levels not seen since 2017. This momentum is likely to continue throughout 2022.
The Royal Institution of Chartered Surveyors (RICS) also found rising levels of commercial property demand among both occupiers and investors. Sector wise, industrial and office space is highly sought after. But, supply may not quite be keeping up.
The office and retail sectors have seen a rise in available leasable space, but the pace of this growth slowed down in Q1 2022, when compared to last year.
This lack of supply has caught the attention of investors and developers. In London, owners face costly environmental upgrades. Many are expected to sell up rather than refurbish. Currently, London’s offices are only around 20% full. Older buildings are seeing vacancy rates rise.
The Government has caught wind of this. The Levelling Up and Regeneration Bill could put commercial owners under pressure. Local authorities may soon instigate high street rental auctions of property that’s been vacant for more than a year. Owners of empty shops may suddenly be keen to sell-off their stock as councils close in.
If you notice more commercial property showing up in auction houses, our guide to property auctions could help you take advantage. Additionally, our auction bridging loans can ensure you hit all the tight deadlines involved.
Source: Allsop, RICS, Financial Times, Department for Levelling Up, Housing & Communities
Disclaimer
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.
