The number of bids received relative to the number of inspections of sales opportunities continues to increase above the long-term average, reflecting more off-market transactions, according to a five-year review undertaken by boutique adviser Acre Capital Real Estate.
Acre is one of the most active nice office and industrial investment advisers in the UK, coming top of CoStar's table for boutique advisers in 2022. It has reviewed the 50-plus office sales it has undertaken since the launch of the business in June 2017, covering a range of geographies and lot sizes in the £5 million to £200 million range, to create a quarterly study of how many inspections are translating into bids.
To do this it has created an "inspection ratio" showing the average number of inspections undertaken per sales instruction in each quarter. As an example, if it had launched three sales and undertaken a total of 21 inspections across those sales that would provide a ratio of seven for the quarter.
It has also created a "bids to inspection ratio" showing the average number of bids received per inspection. If it had 10 inspections and five bids this would provide a ratio of 0.5.
The data clearly shows that there are spikes in inspections when confidence is higher in the market and the wider economy. The highest inspection ratio figure was in the third quarter of 2019 as a pre-COVID country responded positively to the election of a new Prime Minister, and the so-called "Boris bump". Other notable peaks include the bull market that followed the ending of lockdown restrictions in the second half of 2021.
Unsurprisingly inspections decreased when there were COVID restrictions, but were at all time low midway through 2018 as the market weakened and councils were particularly active conducting off-market transactions.
Last year was broadly in line with this average but the trend is weakening as political and economic concerns have led to fewer inspections.
In terms of the bid inspection ratio, one encouraging figure from the time period is that on average every two inspections accounts for one bid, higher than the general market perception and an indicator of the general health of the market, Acre says.
In weaker markets, for instance during the period around the Brexit Parliamentary vote, there was a clear trend of more off-market transactions which naturally results in higher ratios or ratios of 1:1 inspections to sale.
Equally in a strong market there are high conversion rates from a larger number of viewings, with a good example the second quarter of 2021 as the industry began to shake off pandemic markets and became bullish about the economy recovering.
At present and in tandem with the downturn precipitated by the Liz Truss government's mini Budget, Acre has charted a return to more off-market transactions with the bid/inspection ratio almost at a historic low of 0.25. It forecasts the bid-to-inspection ratio to increase to above the long-term average.