The 'staycation' trend looks set to continue and will further bolster the market appetite across the hospitality sectors, particularly around the east coast, city centres and the Peak District. Despite the ongoing decline of the high street, convenience retail centred in the community and offering a diverse range of services continues to thrive. The care sector remains one of the most buoyant sectors in the Midlands, with high levels of activity across the spectrum of the sector.
It's anticipated the 2022 Commonwealth Games will bring over a £1 billion boost to the regional economy. Spectators from around the globe are expected to reach 1.5 billion, shining a light on Birmingham in particular. Associated tourism is driving development across the city and surrounding areas, with new infrastructure, world class sporting venues and transportation through the ongoing tram network and the widely debated HS2 transport proposal underway.
Political uncertainty has influenced buyers and lenders across all sectors to take a more cautious approach and has resulted in protracted transaction times in some cases. Within the care sector, the transaction process if often prolonged by a number of challenges, inclusive of CQC and the cost of agency staff as well as lenders increasingly stringent policies.
2019 brought forth a number of notable regional portfolios, particularly in the care sector, as well as Christie & Co's first Pan-European hotels project which included the Premiere Classe Hotel in Coventry.
Whilst a number of factors are creating hesitance in transactions in the care sector, activity levels remain high. CQC has increasingly impacted operators with ratings thought to be unduly harsh or inconsistent. The trend of inspecting homes whilst a transaction is ongoing has also caused issues and delays where a rating has changed as a result.
Across the region we are seeing more consolidation with single site operators increasingly exiting the market due to funding and regulatory challenges. We have also found larger homes are facing financial pressures due to the growing trend of contracting out management, however mid-size local and regional operators with a good track record are continuing to grow. Prominent operators such as Four Seasons featuring the pressure are increasing the air of caution, but also creates opportunity for expanding operators.
In 2020 we predict that more smaller homes will close, in part due to cost pressures, but also for alternative use. Challenges will continue to come from Local Authority fee rates and lenders' caution impacting the availability of funding.
Hotel transactions across the Midlands remained strong, with demand continuing to outstrip supply for good quality assets. In 2019 we found an increase in the overall quality of opportunities which came to the market which was evidenced with the speed in which we were able to find buyers. In 2020 we anticipate continued growth of both domestic and overseas investors and private equity buying into the sector and the regional hotel market to continue to flourish.
Challenges in the sector were largely driven by the uncertainty of Brexit in the first half of the year, which turned dramatically going into Q3 and Q4. We anticipate some hesitance in Q1 if Brexit is not resolved. As with any business, cost pressures will continue to be a factor for owner's and buyers to consider.
The dental practice sales market across the Midlands continued to perform strongly in 2019, amidst a backdrop of Brexit and the looming NHS contract reform. Whilst there has been no reduction in demand for NHS and mixed practices, the team observed a shift in demand for private practices.
Recruitment in the sector continues to present as a challenge, with practice owners struggling to recruit associates, in turn putting a further strain on practice finances as associate fees continue to creep up. Christie & Co expect 2020 to be another strong year for the sector as practice owners continue to reflect on their future plans and look to take advantage of the strong marketplace and high prices being achieved.
The pub market continues to battle with rising operating costs and the pressures of sourcing credible members of staff, and we anticipate that this is likely to be made worse once the UK exits the European Union for a period of time. However, it is evident that the market is relatively stable despite these challenges. The recent M&A activity involving the sale of Ei Group to Stonegate, Greene King to CKA, and several other notable portfolio disposals including the sale of 137 pubs to Admiral Taverns from Marston’s conducted by Christie & Co, emphasises the resilience of the sector for investors despite the current climate. Furthermore, in 2019 the Midlands office managed to transact on a wide spectrum of assets within the sector ranging from smaller wet led establishments to coaching inns for continued. This clearly demonstrates our expertise and ability to perform for clients in a problematic market.
The market in the Midlands is still very much price sensitive. We’ve also seen a lot of first time buyers and experienced operators from London purchase in the Midlands because of the fact that the return on investment for pubs in the Midlands is far more attractive than in the south due to lower property values. Buyers are still keen to buy in affluent areas and honeypot locations like the Old Bakery in Kenilworth, which is a huge determining factor.
The market across our region has changed this year, we are still experiencing a lot of buyers looking for businesses all across the sectors, we have had a serious lack of new instructions which we believe is due to the political turmoil, because of this most instructions are selling and gaining interest still but there is a serious lack of stock.
We feel that this momentum has shifted slightly, the tune of the clientele we are dealing with now seems to have the attitude of forgetting trying to wait and see what happens with Brexit and the elections etc and to still continue with plans as normal so because of this we are hoping that the following year we will see more committed sellers and instruction numbers should grow, which we have started to see over the last couple of months. If the interest rates stay low and funding stays readily available, then the buying appetite will remain strong.