London's auction houses are an increasingly popular route for private Irish investors to get their hands on commercial property in the UK in the face of an increasing lack of stock at home.
Despite the uncertainties of the UK property market, there is still a considerable difference between returns, sometimes up to 6 per cent, from equivalent investments in the UK and Ireland.
As Richard Auterac, investment partner and auctioneer at Jones Lang Wootton in London, points out: "When Irish investors first got involved in auctions, people were looking for long-term, secured income on property. And, compared to returns of around 3.5 per cent in Ireland, over here in the UK, they could achieve 8 per cent for a similar property. That gap is gradually getting wider."
In some instances, says Jeremy Hodgson in the auction team at Allsop & Co in London's West End, returns can reach 13 per cent if the investment is a refurbishment or development opportunity.
Auctions have several other advantages for the smaller investor who is tempted by the relatively low transaction costs and more attractive yields offered. Firstly, the information on the property is available upfront and, unlike private treaty - the way that most large-scale commercial investments and, incidentally, houses, change hands - the private investor can buy immediately, with no extended negotiating period. Also, the value of the property is effectively judged in the marketplace, and it is where the smaller investments are made available. The average lot size at JLW is £600,000 sterling.
Some £8 million of Irish money was spent at Allsop's December auction alone, Mr Hodgson estimates. Mr Auterac estimates that Irish buyers contributed to nearly 5 per cent of the total revenue of £128 million in his department last year. "They were underbidders on another 15 per cent of the lots we sold," he adds.
London-based property agent Healey & Baker reports that it has up to 40 regular Irish bidders from both sides of the Border.
Bank premises are perhaps the most popular purchase. For one, according to Mr Hodgson, they are recognisable names with a good covenant and an attractive investment would have up to 15 years left on the lease, with a yield of 10 per cent.
Mr Auterac agrees: "A bank which has had a sale-and-leaseback or a recognisable High Street name, like Dixons, are attractive - all with something like 12 to 15 years left to run on the lease."
At Allsop's auction next month, they will be offering a highly reversionary unit in North Allerton, near Leeds, which is let to Northern Electric plc producing £29,250 per annum.
As Irish interest has grown, the market has matured. Despite high residual values in London, regional investments have become more popular.
According to Mr Hodgson, in the last year or so, buyers have examined less obvious opportunities. Classic examples of refurbishment opportunities include two recent multi-let investments bought by an Irish hotelier: a precinct of 19 shops in Tamworth, Staffordshire, sold for Friends Provident at £1.8 million and a parade of four shops, and a Somerfield supermarket, in Bletchley, near Milton Keynes in Buckinghamshire, for £1.49 million. The hotelier is planning upgrades to the tune of several thousands of pounds.
More conventional office investments have also caught the eye. At Allsop's December sale, a City of London office building, the Chambers of Michael Mansfield QC in Tooks Court, London, EC4, were sold at approximately 8.2 per cent net initial yield to another Irish purchaser for AXA Equity & Law. As Mr Hodgson explains. "Irish investors now buy lots with a possible residential angle in the future - so they are looking to do some work on the property to make some money. They also spread the risk, say, buying 10 lots, in case one of them goes belly-up."
