February ’16 Auction Analysis – Quality Convenience Stores on Short Leases Sell Well

Convenience store investors would be interested to know about two Tesco Express’s Allsop’s February auction on Monday 8th February which caught the eye.

Tesco Express were the first of the blue-chip convenience store operator on the scene, so it’s not uncommon to find Tesco Express investments with just a few years to go until their break clause or expiry date. You can see some of the Tesco’s we have acquired here.

The below two investments sold well over their guide prices and these are similar to properties we can source, so this gives an insight into what the open market is paying for such investments:

Lot 6 – Tesco Express, Dunstable

Tesco Dunstable

Description: Freehold 3,259 sq.ft. convenience store on the ground floor with two, self-contained, 2-bed flats on the first floor & 2 garages to the rear.

Tenancy: Let to One Stop Stores (part of Tesco) on a 15 year FR&I lease expiring on 17/01/2020 for a very low rent of only £26,250 pa.

Location: Dunstable is a town of 36,000 close to Luton just outside the M25. On a small parade in a residential area.

Guide Price: £375k – £400k

Result: £565k (4.6% gross)

Our comment: Clearly the Estimated Rental Value (ERV) is higher given the size of the commercial unit and the fact that there are also two self-contained flats. But Dunstable, like many towns outside London, has a ceiling for residential values, so the rent may not jump drastically, but the buyer of this can be confident Tesco Express will renew their lease giving him / her a good future income stream.

 

Lot 87 – Tesco Express, Waterlooville

Tesco Waterlooville

Description: Freehold 4,577 sq.ft. former pub trading on the ground floor only with the first floor effectively sealed off. The site has parking for 17 cars.

Tenancy: Let to Tesco Stores Ltd on a 20 year FR&I lease with a break on 22/12/2021 for a £50,000 pa. with RPI-linked rent reviews

Location: Waterlooville serves a population of 65,000 and is close to Portsmouth. Residential area.

Guide Price: £650k – £675k

Result: £775k (6.45% gross)

Our comment: This is a strong price for what is effectively a short lease. The location seems OK but the good thing about this property is that it sits on a large site, as many former pubs do and also there is an inflation-linked review round the corner.

 

 

 

 

Leases of 10 years or more to blue-chip tenants are getting more and more desirable as they become more difficult to find. Tenants particularly on the high street are only committing to leases of 5 years maximum and this showed in Allsop’s February 2016 catalogue where most of the properties had leases below 10 years.

For the busy private investor, such properties may just be too risky.

Interest in quality commercial property investments is definitely increasing as the new buy-to-let rules coming into force this April are pushing many residential investors into the commercial market.

If you want to invest in blue-chip commercial property on leases of 10 years plus, please contact either Nilesh or Vishal. You can view some of the convenience stores we have acquired in recent years here.

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