Leisure Bulletin: Autumn 2022
Introduction
As you will see, we continue to be extremely active in all areas of leisure. I am delighted to report that our holiday property team recently acted on one of the biggest single asset transactions to have ever taken place in the holiday property sector, the acquisition of Billing Aquadrome, Northampton for RoyaleResorts, and they continue to be at the forefront of the significant merger and acquisition activity occurring in the sector. Alongside, our specialist planning team has helped numerous owners and operators develop their existing properties to take advantage of increased demand in the sector.
Despite the difficult trading environment, our pubs team has continued to work with major pub companies including S A Brain and Company Ltd and Stonegate Pub Company, providing professional valuation and advisory services in respect of their existing portfolios, and has been involved with a large number of the most significant transactions to have been negotiated in 2021. Moreover, as we emerge from the Pandemic, well capitalised new entrants have entered the market and we are looking to help those operators, like Valiant Pub Company, where we can. Although our work in the holiday property and pubs sectors may have captured the headlines, we continue to work with our clients across the complete leisure spectrum, with a good number of assignments in the sports and health and fitness and visitor attraction sectors having been recently completed.
We are delighted with the progress that we have made in 2021 and are grateful to our clients for their support and collaborative and enjoyable approach to the work we have undertaken. As 2021 draws to a close, we are mindful that, with reduced government support, the threat of inflation and interest rate rises, staff and other shortages, the trading environment is not going to be easy over the months ahead and we welcome the opportunity to engage with our clients and help them navigate through some of these issues. In the run up to Christmas we are hopeful that the fallout from Plan B will be manageable, that further support will be provided and that our clients are appropriately resourced and supplied to meet the demand that the leisure market will hopefully see.
Welcome
As I write this, we appear to be entering a much needed period of political stability at home following the extraordinary events of the last few weeks. The challenges for the new administration are significant, and most will impact the leisure market. Although more in the Bank of England’s remit, inflation continues to cast a long shadow over the economic landscape as the struggle between spend and inflation continues. Surging energy and other costs continue to impact business owners and their customers, the pub sector seeing permanent closures this year at twice the level recorded during 2021, according to CAMRA.
The leisure market is, however, resilient and innovative, and there are sub-sectors leading the way as highlighted in our article on extreme sport destinations. In this edition, we also review the holiday and residential caravan park markets, which have historically been robust in economically difficult times. We also review the forthcoming rating review and shine a light on the South East of England, illustrating our involvement in this crucially important region of the country.
We hope you enjoy this latest edition of the Leisure Bulletin and, if you would like to discuss any leisure property matters, please do get in touch with either myself or the appropriate member of my team.
Gavin Brent
Principal and Managing Director - Leisure
+44 (0) 207 911 2228 gavin.brent@avisonyoung.com
Leisure commentary
The latest CGA/Alix Partners Market Recovery Monitor for the three months to the end of June indicated that the market was flat, with the number of new openings of licensed premises matching the same number of closures.
However, the current cost of living crisis may cause further turmoil in the market, which could result in more closures in the latter half of this year/next year as consumers continue to curb their discretionary spend. Recovery in London still lags that of other regional cities, likely driven by the reduction in overseas tourism to the capital. Since the start of the pandemic, there has been a 10.5% decline in licensed premises in the capital. Croydon has suffered the worst with an almost 20% reduction in licensed premises compared to Haringey which has only seen a 3.4% decline.
LICENSED LEISURE PREMISES BY TYPE
The cinema industry continued its recovery during the first half of 2022, with the number of visitors increasing by 22% between the first and second quarters of the year. However, visitor numbers are still 26% lower than in 2019. For the first time since Q4 2019, visitor numbers exceeded 10 million every month during Q2 2022. The most popular movie during the period was Top Gun: Maverick, which amassed revenue of £70.6 million (£15% of the total box office). Visits should continue to increase throughout the year with the release of some blockbuster movies on the horizon, including Black Panther: Wakanda Forever and Avatar: The Way of Water.
UK H1 CINEMA ADMISSIONS AND REVENUE
Investment summary
In the third quarter of 2022, leisure investment volumes in the UK totalled £319 million, which is 83% higher than volumes for the same period in 2021. Year to date, investment volumes total £917 million which is significantly higher than the £516 million achieved in the first three quarters of 2021.
This was mainly driven by two large-value transactions;
A 65-year income strip on Thorpe Park and Alton Towers was sold by LXi REIT to an institutional investor for £257 million in Q3
3 Butlins Holiday Parks were sold to Universities’ Superannuation Schemes for £300 million in Q2
Excluding the two large deals, the most traded asset during the first three quarters of 2022 was public houses. Volumes totalled £154 million, but this is 38% lower than the same period last year.
LEISURE INVESTMENT VOLUMES TO OCTOBER 2022
Regional focus: South East
The South East, stretching from Dorset in the west to Kent in the east, is the third largest region of England with the largest economy of any in the UK outside London. The province is known for its countryside, including 2 national parks, New Forest and South Downs, and hosts internationally known events, including Royal Ascot, Goodwood car and horse racing, Royal Ascot, Henley Regatta and Cowes Week. The 400 miles of coastline, resort towns including Eastbourne, Brighton and Bournemouth, together with the Isle of Wight, make the region a tourism powerhouse with a total value of £12.23bn in 2018 or 13.3% of the UK total, second only to London. The region accounted for £2.7bn of the domestic tourism spend in 2018, fourth behind the South West, London and Scotland.*
*Source Tourism Alliance, UK Tourism Statistics 2019.
Shurland Dale Holiday Park, Isle of Sheppey, Kent
Sold
Hayling Island Holiday Park, Hampshire
Sold
Havenwood Park Home Estate, Sussex
Sold
Sleepy Hollow Park Home Estate, Hampshire
Sold
Romney Farm Touring Park, Kent
Sold
Orchard Holiday Park, Kent
Sold
Hastings Pier, Kent
Sold
Dreamland, Margate, Kent
Consultancy and Valuations
The London Resort
Consultancy advice
Deanland Wood, East Sussex
Obtained consent for extension of 105 park homes
Mill Rythe Holiday Park
Obtained permission for 112 static caravans
Ibis Sports & Social Club, Reading, Berkshire
Sold
Long renowned as a destination in its own right with some of the UK’s finest coastal waters, beaches, mountains and countryside, North Wales has been attracting visitors for decades.
Vibrant Llandudno, the Victorian seaside gem with a history that dates back to the Bronze age, World Heritage Conwy with its deep maritime heritage and the stunning landscape of the Conwy Valley and Snowdonia National Park make this area a firm favourite.
Throw Anglesey into the mix, with its rich heritage and culture, Jurassic landscapes and coastline declared an Area of Outstanding Natural Beauty (AONB), together with the Llyn Peninsula, with its protected wild coast, and cosy seaside towns including Abersoch and Criccieth, and you have all the ingredients for some pretty entrepreneurial leisure investment.
Whilst this area holds an extensive back catalogue of attractors, it’s really been over the last decade or so that the region has stamped its name as the ‘go to’ location in Britain for thrill-seeking adventure, activities and fun!
The area boasts the world’s fastest and Europe’s longest zip line, at Zip World Penrhyn Quarry, the largest zip zone in Europe at Zip World Llechwedd, a network of vast underground trampolines, zip lines and via ferreta at Bounce Below, a network of mountain bike centres and trails including Coed y Brenin, the first inland surfing lagoon ever built in the UK at Adventure Park Snowdonia, The National White Water Centre on the River Tryweryn, theme parks, and of course a beautiful railway to the highest mountain in Wales or England.
This growth in the region's attractions has, in turn, led to a growth in demand for holiday accommodation, and with that, a growth in the demand for higher quality holiday accommodation. Avison Young's Leisure team has been pleased to assist this growth in the North West tourist economy.
Extreme sports destinations
Fortis fortuna adiuvat – Fortune favours the brave in an evolving market of extreme sports destinations, where there always seem to be new waves of fringe leisure concepts driven by creative entrepreneurial thinking.
Avison Young has been involved with a wide variety of developments across the country in this unusual marketplace, providing valuation, disposal/acquisition, planning, rating, and other consultancy advice. A key trend playing out across the field at the moment is the concept of extreme sports married with leisure and F&B offers to complement the experience.
But why is it so addictive, and who is doing it well?
Faster, higher, better
In a bid to stand out in a crowded market, impassioned developers and operators are finding more bizarre but surprisingly addictive things for us to try. After all, a positive TripAdvisor review or social media tag shout-out is what drives footfall, repeat visits, turnover, profit and, ultimately, value. Whether it’s swinging between obstacles in the treetops, springing between giant trampolines in dark caverns, zipping over ridiculous voids, plunging into cold water off gigantic inflatable platforms, or holding on for dear life while climbing up exposed cliff faces, the public’s appetite for the ‘next big thrill’ seems to be insatiable.
The clever thing is that these concepts take fairly mainstream activities like climbing, caving, surfing, or biking, sprinkle them with pixie dust (quite often a lot of it with the help of funding partners), and add on a whole host of other complementary offerings around them (such a food, retail and beds) to make you feel content, relaxed and happy to spend a little more once you have been sufficiently petrified or exhausted. It’s these extras that present the unique value adds.
According to ReportLinker, the global wearable technology market was reportedly valued at £68.59 million and is expected to grow by a CAGR of 21.98 per cent to reach £230.30 million by 2026.
Another alternative fitness market, that grew as a result of the pandemic, was home gym equipment. Without access to traditional fitness venues, a staggering 53.3 per cent of UK consumers invested in gym equipment and reverted to working out at home. Peloton, a company founded in 2012, was a notable beneficiary of the rising demand for remote workout classes, with its membership base more than doubling between 2019-2020.
In the coming years, we anticipate health and fitness markets to make a full recovery and, more broadly, we expect that the sector will undergo a process of consolidation, with budget gym operators, outcompeting high-end alternatives. While budget gyms have not been immune to the disruption caused by Covid, they have on the whole been more resilient. This is largely on account of their ability to attract and retain members through low-cost memberships, flexible short-term contracts and zero cancellations fees. All factors which we consider were not only attractive to consumers during the pandemic, given the previous uncertainty of restrictions, but also going forward with the ‘cost of living crisis’.
Parks market
The caravan park market – all change?
The recent turmoil in the markets, heightened by world events and political upheaval at home, has probably ended the bull market in the sale of parks, with most professional city-based funders taking a time-out from further investment and the costs of operations spiralling to levels unseen for many years. That said, the industry remains resilient despite an inevitable further squeeze on profit margins from caravan sales in the year ahead. We foresee the park’s market remaining active and profitable regardless of operators consolidating their existing parks, prudently adding to their portfolios for the right opportunity as cash flow allows in the year ahead. The level of parks entering the market remains low, therefore, maintaining value due to this scarcity factor.
The strength of the sector is the consistency and predictability of income generated by pitch fees and holiday or residential rents. In a bear sales market, the industry is likely to remain profitable and resilient to an economic downturn.
The value of a park will continue to stem from the actual and potential profit (EBITDA) to be made from the individual business and will be adjusted by the perceived risk in making this profit. One risk driver is the increasing level of borrowing costs, which may increase the yields applied to parks. This affects the multipliers which valuers can apply to EBITDA profit to arrive at a value.
This is particularly prevalent in the residential park home sector where yields on pitch fees, which form the stable income, had reduced to a level close to the cost of borrowing. The multipliers to gauge value are likely to reduce as the cost of borrowing increases, and yields need to keep pace with borrowing costs for operators to maintain profitability.
Conversely, the increase in inflation, causing interest rates to increase, will maintain the income from pitch fees and increase profit margins and therefore the effect on values will be less severe as we move into a new era of higher borrowing costs. The sale of new park homes is likely to remain in demand but will be affected by the increasing cost of mortgages. Larger operators affiliated with an exchange company, and therefore able to facilitate sales of buyers’ existing homes, are likely to continue to profit from new sales.
The yields used to value holiday parks remain above the cost of borrowing; we predict that the effect on the multipliers used to value parks in the holiday sector will be less noticeable. As we move into this new economic era and a likely downturn in profit margins, the value of parks in this sector will likely marginally reduce.
Nevertheless, experienced operators will remain in the market and see opportunities in parks to increase profitability from an existing level and gauge value based on their predictions, as opposed to historic trading.
With the weaker value of the pound Sterling, particularly against the Dollar, and recent disruption in the foreign travel industry, we expect to see continued demand for ‘staycation’ holidays and short breaks. The industry is well-placed to take advantage, and there has been a shift in holiday habits over recent years, with people forced through the pandemic to seek and enjoy UK holiday destinations. Those parks using a dynamic pricing structure are likely to continue to be at an advantage, but we may see a return to last-minute deals in the forthcoming season with the squeeze on household incomes, along with an unknown level of future Government support against fuel inflation beyond next April.
Planning has become an increasingly important issue affecting the value of parks. More frequently in recent years, we have witnessed parks having aged consents, which can allow for more valuable use based on either an established use or a historic poorly worded consent which allows a more valuable caravan use. We firmly advise park owners to investigate their existing planning before contemplating a sale. Similarly, we have witnessed several parks being converted into more valuable use, for example, from touring to statics/lodges. This is an area where our experienced planning team have a proven track record in assisting owners to increase their park value.
Overall, the parks industry is well-placed to weather the economic downturn. We anticipate that values will remain relatively strong in the coming months due to the limited number of parks in the market at the moment and the resilience of the sector with the secure cash flow from the underlying assets.
Planning
Housing Shortage in South East supports Retirement Park permissions
The continued high demand for housing in the South East, and the difficulty that Council’s face in addressing that need through Local Plans, means that less than half of local authorities in the region can demonstrate a 5 Year Housing Land Supply and even fewer can demonstrate adequate delivery over the last three years. This provides an opportunity for home park operators to obtain planning permission for retirement parks in sustainable locations.
Our specialist leisure planning team recently obtained planning permission for 105 residential park homes as an extension to an existing retirement park together with new amenity and wildlife areas, two tennis courts, ponds and a new health club with an indoor pool at Deanland Woods in Sussex.
However, such permissions are not easily won. Despite the application being acceptable in planning terms and therefore recommended for approval by council officers, council members refused the application at Planning Committee necessitating a successful appeal to the Secretary of State.
This permission followed earlier five year rule approvals for 89 park homes in Berkshire and 81 park homes in Kent. We currently have two other applications for retirement parks awaiting consideration in Sussex and Kent.
Staycation supports holiday park renewal
The staycation effect of the last few years has supported demand and planning permission for holiday park extensions around the country. In the South East, our leisure planning team has obtained permission for 112 static holiday caravans and a wildlife area to replace redundant chalets and a former 9-hole golf course at Mill Rythe Holiday Park.
This followed an earlier permission for 203 static holiday caravans as part of a permission to transform the former holiday camp into a modern holiday park. As the park is situated in an area at risk of flooding, Avison Young also provided specialist flood risk and drainage advice.
Rating Revaluation 2023
What’s Coming
The next nationwide business rates revaluation is to take place on 1 April 2023, placing new rateable values on all 2.1 million properties liable for business rates. The new figures will be based on rental levels prevailing in April 2021, which is in a period where properties were affected by the Covid 19 pandemic.
Rateable values are generally based on rental levels, and the 2017 list is based on prevailing rental evidence from 7 years ago. As a result, there are likely to be big swings in liability change following the 2023 revaluation.
The biggest changes are likely to be seen in the retail sector, where we anticipate significant reductions in liability, whilst other properties in parts of the logistics and industrial sector are expected to see substantial increases.
Leisure Impact
Parts of the leisure industry were impacted by Covid 19 more than others with, for example, pubs having long periods of enforced enclosures and then having to adhere to spacing rules etc. This was recognised by the Government which granted Retail Rate Relief as a result.
Properties valued by reference to their trading performance, including hotels, pubs, bingo halls and marinas, were to a greater or lesser extent, unable to trade fully due to the Covid-19 restrictions that were in place on the 1st of April 2021 (the valuation date). This leads to an argument that such properties should attract nil or nominal rateable value at the forthcoming revaluation. The VOA, however, is highly unlikely to accept such an argument. Conversely, caravan parks have fared much better with high demand for the hire fleet as the UK Staycation factor with issues of regulations and travel disruption to holiday abroad.
We understand they are looking at adopting lower multiples for the leisure and hospitality sectors to reflect the impact of the pandemic.
A recent article produced by Altus indicates pubs are already closing at 50 per week, and the ending of the Retail Rate Relief on 31st March 2023 and the effects of the cost-of-living crisis will only make the problem worse.
Key Dates to look out for
Autumn 2022
Government to announce provisional UBR for 2022/23 and details of any transitional relief schemes.
31st December 2022
Draft Rating list to be issued and guidance notes as to how the RV has been arrived at.
March 2023
Local Authorities will issue new rates bills based on the new RV and UBR.
31st March 2023
Last date for any appeals against the 2017 Rating List.
What can be seen from the above is that there is a short 4 month period to assess the RV and get it amended before 1st April 2023. In previous valuations, the draft RV has come out in September / October of the year preceding the new Valuation. In practice, most draft RVs are unlikely to be looked at in that period. When (and if) the RV is amended, the rates payable would also backdate to 1st April 2023.
The Elephant in the Room
The new 2023 rateable value is only one factor affecting the rate’s liability. A rating revaluation is revenue neutral; however, the overall tax take may still rise. Each year the multiplier (the UBR) used to calculate the rates payable for individual properties can be increased by up to the rate of inflation in the preceding September. The CPI announced on 19th October is 10.1% and could lead to a substantial increase in liability even for properties where the RV has remained the same or reduced.
However, the rate multiplier could fluctuate upwards or downwards (or stay the same as it has since 2020).
Transitional schemes have been in place in previous valuations to soften the impact of any substantial increases in liability. If a similar scheme is introduced at the 2023 revaluation, ratepayers in the industrial and logistics sector are likely to be subsidised by those in the retail sector. The full details of any such scheme will not be known until the end of 2022.
With inflation hitting the UK harder than any other major economy, without intervention and a change of direction by the Government, the overall business rates tax take could rise by £2.6 billion next April.
Conclusion
Given the economic position on 1st April 2021, the VOA will undoubtedly change some methodology in how they approach the RV and, therefore, there is a high probability that your assessment will not be valued correctly.
Avison Young offers free initial advice, and we welcome you to contact us accordingly.