Commercial auctions can offer property bargains

London has gone conversion crazy as home-searchers discover commercial auctions as clever places to find a property bargain, discovers David Spittles
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Homebuyers and investors searching for somewhere to put their pension money are discovering the benefits of commercial property auctions as the conversion trend begins to engulf London.

Buying commercial buildings was once a niche sector for real estate professionals bidding for income producing freeholds and buildings for conversion to residential.

Swan Inn in Radwell
Guide price: £180,000: Lot 86 in the Allsop sale on November 1 at The Park Lane Hotel, Piccadilly, is the former Old Swan Inn in Radwell, Bedfordshire, which could become a character-packed single home. Visit

However, the relaxation in planning laws is encouraging property enthusiasts, searching for homes and opportunities, into the auction market — which is nicely balanced, with keen buyers and willing sellers well matched.

In the first quarter of this year, Westminster City Council granted consent to 62 applications for change of use from office to residential, among them original period townhouses that had been turned into commercial space.

Auction Dates:

Lambert Smith Hampton: October 22 at Claridge's. Visit
Clive Emson: October 29 at The Clive Emson Conference Centre. Visit
Allsop: November 1 The Park Lane Hotel, Piccadilly. Visit
Andrews & Robertson: November 5 at The Russell Hotel, Russell Street. Visit

A ground-floor shop in Oldridge Road
Guide price: £50,000. Lot 161 in Allsop's sale is a ground floor shop in Oldridge Road, Balham, SW12, with potential for creating a studio flat in a sought-after area. Visit

Conversion opportunities

Allsop's auction on November 1 has dozens of properties ripe for conversion back to single houses, including a building in the sought-after Tredegar Square conservation area, Mile End. Guide price £500,000.

For investors, commercial property can be a lower-risk route and offer better returns than buy-to-let.

Auctions are the most convenient way into this market as such properties are rarely handled by estate agents. A single catalogue may feature 150 lots. The buying process is straightforward and the deal is binding when the hammer falls.

What investors want

Most investors want security of income at a decent margin over borrowing costs, and with today's low interest rates, this can be achieved comfortably. Auction firms regularly sell investment freeholds, where a rent-paying tenant is in place.

Retail is strong, particularly in established locations — for example, banking halls and fashion stores in busy high streets. Income-producing freeholds start at about £50,000. Most investors spend up to £500,000, though the threshold is increasing all the time.

Long-lease properties let to blue-chip retailers are popular with investors because banks are happier to lend when there is a known-name tenant (with a track record of paying the rent — referred to as a "good covenant").

Former warehouse in Camden
Guide price: £2 million. At Allsop's November sale in Piccadilly, lot 244 is this former warehouse with obvious potential for conversion to residential use in Camden Road, N7. Visit
However, the yield, or rental return, may be lower than on short-lease premises: a three-year lease, for example, taken by a start-up business in a so-called secondary area.

More and better-quality property is going under the hammer because big institutions such as pension funds and banks are selling off their portfolios.

Apart from better yields, there are other advantages over buy-to-let. With a long-term tenant in situ, there is a steady income stream and voids are not an issue.

Moreover, with commercial property, the tenant, not the landlord, is responsible for repairs and maintenance, meaning you do not have to be hands-on. And most investments have upward-only rent reviews.

Tax efficiency

Commercial property is also highly tax-efficient if purchased via a self-invested personal pension (SIPP). A SIPP qualifies for tax relief and up to 50 per cent of the pension pot can be used to buy commercial property.

Some investments are "bone-dry", producing a straightforward income. Others, such as parades of shops, may have messy tenancy arrangements that offer potential to enhance income, through lease extensions, for example.

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