Leisure Market Update
We are now half way through 2013 and at the time of the year when the majority of the new 2013 property stock is on the market. Looking through the various agents that have leisure properties on the market, stock levels are high although the majority of properties appear to be those that are not particularly profitable, tired, overpriced, risky or require significant capital investment. The strength of demand is for the profitable leisure businesses.
The combination of a continued lack of growth in the economy, inflation and cost pressures still create major challenges to operators of leisure properties and this in turn is affecting capital values.
Compounded with these challenges is the continued difficulty in obtaining finance and the banks not being willing to lend on anything they deem as high risk. Lack of available finance is driving down demand, and also effects a buyer’s decision making when considering properties that require capital investment either on improvements or repairs.
Demand for holidays in the UK appears to be at its peak, and this has primarily affected the hotel, caravan parks, holiday homes and accommodation businesses. The level of holiday demand also has an indirect effect on other leisure properties that offer activities and recreation as they also try to attract holiday makers as well as day trippers. Occupancy appears to be maintaining its strength in most accommodation businesses although at its expense the majority of operators do not appear to be increasing tariffs. This means that in the majority of businesses turnover is not growing whilst costs have increased and continue to increase primarily due to inflation.
The capital value of leisure property is linked to the maintainable trade and profitability of the business concerned. Whilst the multipliers applied to profits when assessing capital value has dropped due to reduced funding options and perceived increases in risk, the capital value should only fall back where profits in the business have reduced or remained stable. Where businesses have seen an increase in profits or otherwise look likely to improve profits, values have sustained and in some cases increased.
In the current market there is an increasing importance when assessing the value of leisure properties to focus on the specific key facts of the trading records and financial accounts. Underlying that is also the location of the business. Where properties are well located and can show certainty in terms of business performance, these could attract scarcity value as they are currently in under supply. I don’t believe there will be any dramatic shifts in the leisure property market over the coming years due to the continued pressure on costs and the limited opportunities to increase turn-over against the banks unwillingness to lend and the continued perceived risk in leisure properties.
Therefore, if an operator is considering selling their business there is no point in waiting to sell as it is unlikely that any significant increase in value will be attained going forward.