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Caravan Parks, Holiday Complexes & Park Home Estates

Market Report

Each year Edwards and Partners review the results from a wide range of transactions in the caravan park and leisure market to produce a survey of values and trends in the self-catering holiday and park home industry. The following is an extract from the latest report published in January 2010. The full report also contains articles on miscellaneous issues of potential interest to caravan park operators. Further details can be obtained from infosouth@edwardsandpartners.co.uk.

Introduction

A few rays of sunshine

Although the Met Office predictions of a barbecue summer failed to materialise and the market for the sale of caravans and park homes remained slow, many park businesses saw their incomes rise in 2009. Those holiday parks involved with letting and touring benefitted from the favourable currency exchange rates and the rise of the “staycation”. Similarly, after a very slow start, the market for the sale of parks improved as the year progressed.Whilst there may be a long way to go before we regain what could be described as ‘normal trading conditions’ there are a few rays of sun shining through the dark economic clouds.

General Economic Review

The question in 2009 was not “is there a recession”, but “how bad will it be” and “how long will it last”? Despite government predictions that it would all be over by the summer, the figures for the third quarter of 2009 remain stubbornly negative according to the initial surveys. By most measures this has been the worst recession since the Second World War, with economic output falling by 5.9% over six quarters. This compares to a 2.4% fall over five quarters in the early1990’s and 4.5% in the 1980s. Whilst the official recession may be over by the time this Report is published, the recovery period for the economy as a whole is likely to be slow and painful.

Unemployment, which has increased less quickly than many expected, is likely to continue to rise over the coming months and the combined effects of tax increases and government spending cuts will undoubtedly squeeze incomes and restrain spending. These conditions have persuaded the Bank of England to keep the base lending rate at a record low level of 0.5% for most of the year and most analysts expect it to remain there well into 2010. Meanwhile, inflation as measured by the governments preferred Consumer Prices Index (CPI) has started to creep up, mainly due to increases in oil prices. However, the Retail Prices Index (RPI), the measure used by many parks for the basis of pitch fee reviews, fell below zero in March and remained negative for the remainder of the year.

Both measures are likely to rise in the New Year, when VAT goes back to 17.5%, but the after effects of the recession are likely to exert downward pressure on prices later in 2010. How the recession has affected the parks industry depends on the economic profile of your customers, but both the ‘grey market’ and younger families tend to be heavily influenced by house prices and house price activity, as they are a major influence in consumer confidence. The fact that house prices seem to have stabilised, at least in the short term, is therefore to be welcomed.

According to virtually all surveys, average values stopped falling around June or July and increased slightly during the months to November. The Nationwide survey published in November suggested average house prices are now 13% below the peak of 2007, whilst surveys from the Halifax and Land Registry put the figure at 17% and 15% respectively. Whichever measure you choose, these figures are considerably better than the predictions of falls of up to 30% put forward by many commentators 12 months ago. Nevertheless, activity remains relatively weak and the availability of mortgage products has been severely reduced (a 90% drop from July 2007 to July 2009 according to Money Facts). There is a danger that the uncertainty leading up to an election and the ‘hard choices’ that will have to be made by the next government, may trigger further falls in 2010, leading to a ‘double dip’ in house prices. Only time will tell.

Unfortunately, the lowering of the Bank of England base rate has been of only limited assistance to some, as many banks and building societies have increased their margins rather than passing cuts on to their customers. We have heard many stories of sharp rate increases to overdraft facilities and ‘restructured’ loans, just when the customer least needs it. However, there are some signs that banks are supporting troubled businesses where possible, so perhaps some lessons have been learned from the early 1990s. Thankfully, the majority of the parks industry is well secured and trading profitably so, on balance, there is little cause for concern in this particular sector.

Holiday Parks There is no such thing as a typical holiday park and the many different profit centres that can be found within this sector of the industry have made it increasingly difficult to generalise about how parks have been performing through the recent recession. Those businesses that concentrate on providing private holiday homes found the market for the sale of caravans and lodges all but collapsed in 2008 and although there has been some improvement in 2009 sales remain slow. The feedback we have been receiving seems to indicate that most activity tends to be in the lower price ranges and expensive units are currently harder to sell, which is hardly surprising.

Whilst mature parks of this type continue to receive regular income from pitch fees, turnover will undoubtedly have been affected by the slowdown in sales. A lthough the predictions of a barbecue summer failed to materialise, touring and camping parks and those providing self-catering holiday combinations seem to have fared better. As we saw in the last recession of the early 1990s, UK parks offer excellent value for money and this has been further boosted by the fall in the value of the pound against other currencies. Consequently, the number of domestic holiday trips increased (up by 15% in the first six months of 2009 according to Visit England) whilst outbound travel fell by 17%.

In addition, the favourable exchange rate encouraged foreign visitors, with holiday trips to the UK up by 4% over the same six month period. Fine spring weather, a late Easter holiday and ‘an Indian summer’ late in the year, all helped to off-set a very wet July. As a result, many touring and letting parks have been reporting increases in receipts of between 10% and 15% compared to 2008. However, ‘on site spend’ has not increased a great deal, suggesting that customers are travelling with less money in their pockets. Location and quality has also had a part to play, with those offering a well presented product in an attractive setting benefitting the most from the upturn in UK holidays.

In terms of the market for the sale of holiday parks, 2009 was again a year of two halves. The first six months of the year started in the same vein as the end of 2008, with a lack of activity caused by severe lack of confidence from both buyers and sellers and a shortage of funds from lenders. There was however a marked improvement during the late summer resulting in a welcome increase in the number of transactions and we are currently experiencing a very busy end to the year. Whilst it is true that difficulties in selling other types of property and a continuing lack of available credit has reduced the number of ready and able buyers, there has also been a shortage of good quality parks coming to the market. Although the average length of time to achieve a sale has increased since the boom market of 2006/2007, several parks offered for sale during the autumn months have sold within a matter of weeks as a result of targeted marketing to our list of ‘hot’ buyers.

Residential Parks It is hard to think of a more reliable form of income than the pitch fees received from privately owned residential park homes. Using the example of a 100 unit park, the investment risk is diluted across 100 individuals, all of whom have invested most of their life savings in their home. The chances of a major interruption to this income stream are virtually negligible. Add to this the fact that the vast majority of residential park operators have been in the business for many years (some for several generations) and it is easy to see why the current slowdown in the housing market is unlikely to cause any significant distress. Although the sale and re-sale of homes has slowed significantly compared to the peak of the market, core earnings from pitch fee income remain sound. Unfortunately, the annual review of pitch fees in accordance with the Mobile Homes Act agreements is calculated by reference to the Retail Price Index, which has been negative for most of 2009. As a result, many park operators have been unable to increase their pitch fee income this year.

However, this unique set of unfavourable trading conditions is unlikely to last very long and we are already receiving reports of an improvement in the sale of park homes in some parts of the country, albeit at slightly reduced prices. Again, location seems to be the key and whilst the market remains slower in the north of England, parks in the south are benefitting from a slight pick-up in the housing market. There continues to be a reasonable demand for residential parks from both investors and developers and we are currently in touch with a number of existing operators and new entrants intent on making a purchase in 2010. As with holiday parks, there was a shortage of park home estates coming to the market in 2009 and we therefore hope for a little more activity in the coming year. The analysis panel provides commentary on average pitch values and whilst this measure continues to be a useful ‘ready-reckoner’ buyers are now more focussed on yields from pitch fees. It is this which will determine whether a park is worth say £25,000 per pitch, or not, with location and future development potential forming secondary considerations. In the present market, the key is to balance the price expectations of vendors against the value expectations of buyers following this initial period of re-adjustment.

Analysis

The Edwards and Partners’ survey of pitch values is based on all the park sales we have dealt with throughout the past 12 months, together with valuations where we were not the selling agents and the results of tenders and auctions in which we were involved in advising clients. As a result, this is probably the most comprehensive report available on the caravan park market.

Touring Pitches

The sale of several high quality high earning touring parks over the past year helped to push the measurement of average pitch values up towards the £10,000 mark. A slow market, resulting in fewer sales means there is a real danger that a variant in the sample of parks may cause an abnormal fluctuation in the recorded average. However, the value of a survey of this type is improved over time, allowing longer term trends to be assessed. Having stagnated in the late 1990’s, the average touring pitch value has doubled in the last five years, from 2005 to 2009 inclusive.

Static Holiday Home Pitches

Again, variations in the sample may be the reason behind a large rise in average values in 2008, followed by a small fall in 2009. The average static pitch value recorded over the last twelve months fell from around £20,000 to about £18,000, although this is still well up on the £15,000 recorded in 2007. We suspect these results reflect a slight over-valuation in 2008 and this year is probably closer to the long term trend.

Residential Parks Pitches

It is perhaps inevitable that falls in house prices, the lack of favorable mortgage products and the ensuing reduction in transactions have impacted on the value of residential pitches. The very high prices paid in 2007/2008 were reliant upon (what proved to be) an unsustainable level of profit from sales. Now that sales have slowed, operators are demanding improved yields from pitch fees and this has lead to a reduction in the average pitch value.

The average value recorded in 2009 fell from just over £30,000 to around £25,000, which is similar to the level recorded in 2006. From these results, it would appear the ‘froth’ has well and truly disappeared and the average value is now at a more realistic and sustainable level.