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 2012. 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
Not out of the woods
With the media reporting ever more depressing articles about the global financial crisis it is difficult to find anything positive to say about the prospects for the UK economy. Yet parks have again shown their resilience in the face of adversity, with the majority of sectors reporting consistent trading figures in 2011. The market for the sale of parks has remained challenging and values appear to have eased slightly, but this may well be a sample based phenomenon, rather than a true reflection of falling values.
General Background
Hindsight is a wonderful thing. It now appears the signs of recovery in both our market and the wider economy that we outlined in last years Report were to be short lived and our predictions appear to have proved overly optimistic. But we were not the only ones to misread the situation. The slowdown in world growth and the Euro zone crisis have had a depressing effect on business and consumer confidence. During the course of this summer we watched in amazement as America came within days of failing to agree a national budget and throughout the autumn a succession of crises in Europe have raised the spectre of entire countries going bust.
This financial uncertainty has led to a return of the 'credit crunch' (did it ever go away?) leading to a lack of investment and rising unemployment. New private sector jobs which the Government forecast would fill the void left by public sector cuts have failed to materialise. As a result, predictions for UK growth have been continually revised in a downward direction. In 2009 the Treasury forecast growth of between 3% and 3.5% in 2011. In the March 2011 Budget this was revised down to 2.5% and in the Autumn Statement it was revised again to 0.9%, with a paltry 0.7% growth forecast for 2012. More worryingly, the economic think-tank, the OECD, and the Ernst & Young Item Club have both warned that the UK economy might fall back into recession early in 2012.
In his Autumn Statement the Chancellor, George Osborne announced various measures to try to stimulate growth, including funding for major infrastructure projects, a national loan guarantee scheme to promote lending to small businesses and an indemnity scheme aimed at increasing mortgage finance for affordable homes.
It is clear why the housing market is being supported as this is a key economic driver of consumer confidence and retail spending. Broadly speaking house prices appear to have remained flat over the past twelve months (depending upon which survey you prefer). The Halifax survey shows the average house price has fallen by 1.8% for the year ending October 2011, the Nationwide index shows a slight rise of 0.8% for the same period whilst the Acadametrics survey shows prices 1.3% down.
There is an argument that house prices remain over valued but this may be resolved over time through the effect of inflation. Transaction volumes also remain low, currently running at about 60% of the long term average according to the Acadametrics Report published in November. This will be a particular concern to residential park operators who rely upon house sales to provide a regular supply of park home purchasers. With wage inflation running at below the cost of living, real incomes continue to be squeezed and with an outlook of weak economic growth and constrained mortgage funding the housing market is unlikely to improve in the short term.
We can only hope that recent Government announcements including the 'Housing Strategy for England' launched in November with the key aim of 'getting the housing market moving again' proves successful.
Footnote: This report was written early in December 2011.
HOLIDAY PARKS
Trading conditions for holiday parks remained challenging in 2011 as rising fuel prices threatened the recent trend for 'staycations' and emphasised the importance of the property mantra 'location, location, location'. However, the majority of park owners we interviewed during the autumn months have reported trading levels broadly consistent with 2010, although results vary across the regions and different sectors of the industry.
Our new online survey launched last year attracted a small number of responses compared with the total number of parks that exist, but enough to prepare some approximate statistics. The answer to the question 'How is your business compared to last year?' is summarised in the charts below representing the five primary sectors of the caravan park industry.
It would appear that touring and letting businesses have generally fared better with a fine spring and a mild autumn helping to offset yet another wet main season. However, the trend towards late bookings continued and many sites had vacancies in August until the very last minute, with customers demanding discounts. Caravan sales again remained difficult with operators reporting better demand for good quality second hand caravans as opposed to more expensive new units.
Parks have also had to battle against two successive VAT rises which have inevitably eaten into tariffs. A further change from 1 January 2012 which will bring the recharge of business rates, water and sewerage costs into VAT at the standard rate is unfortunate and unwelcome.
The fact that holiday parks continue to trade profitably demonstrates the resilience of the sector despite the economic conditions prevailing in the economy overall. Thankfully, this means there are very few distressed sales in this industry with the vast majority of parks being sold on the open market as fully trading going concerns.
The market for the sale of parks has continued to be challenging since the recession of 2008/2009 albeit there was a slight improvement in 2010 which unfortunately does not appear to have been sustained in 2011. A lack of movement in other sectors of the property market and continued difficulties in raising funding has reduced the number of ready, willing and able buyers, particularly 'lifestyle' buyers of small holiday parks.
Whilst the number of parks coming onto the market increased slightly over the past year, there was a notable lack of high quality businesses. This may be the reason for a slight dip in the average value of pitches this year (see analysis panel on page 4).
Looking to the future, the recently publicised financial problems of the Thomas Cook group and political instability in holiday destinations such as Tunisia and Egypt, together with the cancellation of the planned 3p rise in fuel duty in January 2012, can only be good news for the home based holiday industry. It has already been proved that holiday caravan parks are well placed to capitalise on their attractions as value for money becomes ever more important; a trend that will surely continue.
RESIDENTIAL PARKS
Well located and correctly priced residential parks continue to be a sought after commodity in these uncertain times. This is not surprising given that pitch fees from privately owned residential homes are amongst the safest investments in the property market. Therefore, these businesses represent a relatively safe haven compared to other types of commercial investment; despite the fact the sale of park homes remains difficult and slow.
There is clear evidence from recent sales that buyers are now demanding a better return from pitch fees to compensate for the lack of profits from sales. Normally a rise in yields would cause a falling value, but annual RPI based pitch fee reviews have certainly helped to underpin residential pitch values. Two consecutive years of increases at around 4% to 5% (compound) mean that a pitch sold at, say, £25,000 in 2011 is providing a considerably better return than it was in 2009.
Therefore, the market is currently driven by yields, although sales remain an important secondary factor. Geographical location is also very important with a clear value divide between the affluent south coast and south east and the rest of the country. Parks around the M25 corridor continue to sell for much higher figures than elsewhere, helping to off-set much lower values in the north of England and Scotland (see analysis panel on page 4). In areas where sales have become more difficult we have seen a few park operators opting for the rental market, which can provide a lucrative short term solution. Indeed, a cheap second-hand home can often recoup its cost in just one year proving there is very little downside to this industry.
Looking at the market for parks, we sold more residential park home estates in 2011 than in either 2010 or 2009 and with a number of 'portfolio builders' currently active in the market place this looks set to continue into 2012.
ANALYSIS
We should preface these statistics with the message 'don't panic'. The graphs below are formulated from the analysis of all the sales that we handled and reliable evidence from other sales that took place during the year. But we are operating in a 'thin' market with a relatively low number of transactions. In particular, we noted that within the holiday sector there was a distinct lack of high quality parks changing hands this year. Of course, we can only analyse what has been sold and it is possible that the fall in average pitch values is a reflection of a lower quality sample. As always, we make the point that these statistics are purely averages provided for interest and should not be used to assess the potential value of any particular park. We are certainly not suggesting that the value of all pitches has fallen across the country, as we continue to see parks where this is patently not the case. Each park needs to be valued individually against its own trading figures and unique circumstances. This year, for added interest we have included the statistics for the Median house price (adjusted to 10% of full value) shown dotted red on the graph.
Touring Pitches
The rapid rise in average touring pitch values during the period 2001 to 2009 was no doubt fuelled by the strong demand from lifestyle buyers and underwritten by a general rise in property prices.
The fact that values flattened and have possibly dipped slightly is a reflection of the state of the buyers rather than any issues in the business. At an average of around £8,500 per pitch the figure now stands at around the same as that recorded at the end of 2008.
Caravan Holiday Home Pitches
The average value produced by our survey this year was around £17,000 per pitch, a slight fall from the £18,000 average recorded at the end of 2010. As previously mentioned, this may well be as a result of the change in the quality of the sample and these parks continue to be sought after and profitable businesses. It is also worth noting the considerable disparity between the values recorded in England and Wales and those north of the border in Scotland, where average values are considerably lower.
Residential Park Home Pitches
The average value recorded for residential park home pitches has fallen slightly from £25,000 last year to £24,000 at the end of 2011. Although this sector is most affected by the poor state of the housing market, average values have been supported by strong pitch fee growth generated by annual RPI reviews. However, the range of values recorded has widened with sales as low as £13,000 per pitch at the bottom end and over £30,000 per pitch at the top end.
Figure 1 : 10 Year History of average pitch values.
Average pitch values over a 10 year period 2001-2011. Values based upon fully developed operational pitches, including facilities necessary to comply with Site Licence requirements, excluding the value of any caravans or additional amenities. No adjustment has been made for the variance of the sample from year to year. These figures are offered only as a market guide and should not be used in relation to any particular property.
Figure 2: Range of pitch values achieved in the 12 month period 1 November 2010 to 31 October 2011. The results depend entirely upon the sample of parks sold and serve only to illustrate the wide differential of values within each sector
(Click Figure to see larger image)
THE HARD SELL
So who is selling parks in these difficult market conditions? We thought it would be interesting to carry out a survey of the 'Under New Management' section of the BH&HPA Journal to compare the number entries each agent has reported in the past 2 years.
As a matter of policy, we do not report confidential or 'off market' deals in our publicity and we assume other agents are similarly only reporting open market transactions. The results are summarised in the chart below.
So if you are unsure which agent is best placed to connect you with genuine buyers in these challenging times, the answer is clear; our results speak for themselves.
