It is getting hotter for Irish investors bidding in UK auction rooms as they face more local competition. Where once the Irish led the way targeting certain UK investment properties, other - mostly British - investors have joined the fight in force.
"A number of UK-based investors are realising that other forms of investment are not showing them quite the return they once saw," explains Jeremy Hodgson, partner in the investment team at Allsop & Co in London.
"They have identified opportunities in property and are now looking at the sort of investment that Irish buyers have been chasing. For instance, buyers once prepared to settle for a 7 to 6.5 percent yield for a branch, say, of the local Barclays Bank, now will need to sharpen their pencils a little bit."
Richard Auterac, head of auctions at Jones Lang LaSalle, echoes the warning. Recent drops in interest rates have made the cost of lending more competitive, and, therefore, the bidders more aggressive in the auction room. "With the drops in UK interest rates of some 2.75 per cent since October, a greater interest from private investors here has been fuelled. They have been able to compete more aggressively," says Mr Auterac.
One solution is to take the private treaty route, which is how the majority of commercial property changes hands. A recently completed sale by private treaty saw a private investor from Ireland buying a 20,500 sq ft mixed office and retail building off the High Street in Swindon for some £2.6 million sterling. It is occupied by Barclays Bank and Ernst & Young, paying a combined rental of £223,500 per annum. The price reflected a net initial yield of 8.2 per cent.
Mr Hodgson says that three Irish investors have put offers in on a retail property Allsop is selling for around £565,000 in the south west, in Boscombe, Dorset. The building is let to Abbey National for a further 23.5 years and reflects a 7 per cent net initial yield.
Another side-effect of the interest rate drop, though, has been to push more sellers into the auction house. Mr Auterac believes that "in terms of supply, the taps have been turned on. The increase is quite dramatic. Vendors can see an appetite for product and the UK institutions, in particular, are looking very positive towards selling the smaller properties in their portfolios".
This follows a significant yield shift downwards, which was confirmed earlier this year, he reckons, as a result of both the fall in interest rates and the positive yield gap on property above finance costs.
He says the yield shift on retail properties is by at least a hundred basis points, virtually across the board, but on office properties, it is more specific to the individual location and building.
However, despite the increased competition, according to the major London auction houses the Irish private investor is still playing a major part in the UK market. Mr Hodgson estimates that buyers from Ireland have bought a fifth of all the properties Allsop & Co have sold at auction in the last six months. That equates to some £32.2 million in the last three auctions of commercial property alone.
That figure could have been even higher, Mr Hodgson adds. "Remember, there is a greater number of lots that they did not buy but they under-bid on."
There is still a case for investing in property, Mr Auterac maintains. "My instinct is that the fundamentals are strong in the market. Any risk levels that might discourage vendors from owning property - such as tenant failure - are pretty well balanced by the level of occupier demand. Unlike the late '80s, there is not an overhang of unoccupied space in the market."
