Following the split of our North region into East and West last year, our Manchester office has a busy recruitment campaign underway to boost our teams in order to meet growing work and demand.
As investment in the city grows, opportunities for expansion are increasingly emerging, making it an attractive option for more and more investors, boosting the city’s economy further. For example, with the BBC now firmly entrenched in the region, this has only proved to have a positive impact in and around Salford which is building from the media hub in the area.
All of our sectors have growth potential, with Childcare & Education continually and rapidly growing, retail forecourts and convenience businesses proving very popular, and high quality care assets in high demand. In some sectors, increased competitive tension has been beneficial to different sales processes and we are seeing multiple bids on quality assets.
Childcare & Education
We have seen unprecedented demand this year for high quality childcare settings across the North West region.
Activity has been strong right across the board with continued interest from first time buyers right the way through to acquisitions by some of the sector’s leading operators. The emphasis has been on quality, where settings which have a proven track record for profits and are in the right locations achieving market setting prices time and time again in 2018.
There is demand from buyers looking for the potential to convert properties into childcare settings which is why D1 space is at a premium. Processes which we have been involved in have shown that there is a bustling market for organic settings across the North West.
We have seen consolidation from regional operators who have been exceptionally active in 2018, adding to their current portfolios. We have been able to connect active small group operators with a plethora of opportunities which has seen them move into the top 20 operators in the country.
Some examples of 2018 single asset day nursery transactions include the freehold sale of Harrison Day Nursery in Wallasey, Wirral, which sold to regional operator Kids Planet, marking the group’s 30th addition to their fast-growing portfolio of outstanding settings.
Another successful sale was that of Rocking Horse Nursery in Audenshaw, Greater Manchester, a family run business acquired by fast growing national group operator Storal Learning, achieving a premium sale price for the 100 plus place setting.
We also successfully brokered the new lease agreement for the vacant premises, formerly Heywood Evangelical Church in Heywood, Oldham. The lease was agreed for the property to be converted into a nursery between an investor landlord and the incoming tenants, a husband and wife existing operator team whose plan is to grow a small portfolio.
At the very top of the market we have seen some larger corporate transactions. An example of this being the sale of Daisy and Jake nursery group in the Wirral, a multi site, multi million pound transaction.
All indications are that the demand for settings across the region is set to continue into 2019.
The Pharmacy market across the North has remained buoyant this year, with both small independent sites and higher item businesses finding eager buyers. Corporate divestment has fuelled activity as several larger groups looked to sell their smaller sites, which are increasingly unviable following remuneration changes. This shrinking of the larger estates has been fruitful for the first time buyer market, as well as regional groups keen to increase their buying power and improve margins.
Bank funding has supported the level of transactions, with a range of lenders still keen to support purchasers in the sector. The volatility of the last few years, combined with enforced changes to repeat prescription ordering under some CCGs, has increased the importance of projections and detailed business plans for securing finance. This has favoured the existing operator who can show their ability to operate and grow pharmacies in the current funding landscape.
Christie & Co has remained at the front of the sector in handling pharmacy sales. We have completed on three sales in excess of £2 million across Yorkshire and Lancashire, as well as agreeing deals on the largest bricks and mortar pharmacy in the country – dispensing over 40,000 items per month. We have been busy on the other end of the spectrum too, as our extensive database includes many first time buyers who we have helped to secure their first business. Their ability to secure funding through Christie Finance has reassured owners of pharmacies dispensing under 5,000 items that there is still a market for them to sell in.
Pricing has remained strong in the North, with competitive bidding leading to pharmacies regularly selling over asking price. Our offices across the North including Leeds, Manchester and Newcastle have allowed us to create personal relationships with smaller regional operators so that deals can be done quickly, with opportunities presented directly to likely buyers in the local area.
Going into 2019 we expect the volume of deals completing in a single year to reduce due to extended deal times, however we predict no downturn in the number of deals agreed. Supply has increased, but is still far outstripped by demand, keeping offer levels and values high. Operators will face new challenges in the coming year with the introduction of the Falsified Medicines Directive, but this is minimal relative to the trials of recent years. Pharmacy businesses look to remain attractive to buyers, existing operators and banks, both internal and external to the industry, so we can expect the market to be robust for the foreseeable future.
Year to date we have sold exactly twice the amount of dental practices in the North than in the same period in 2017, with 2018 seeing a 45% increase in the amount of dental businesses brought to the market by Christie & Co in the North.
2019 is set to be a record year in the North with buyer appetite the strongest it’s ever been. We are seeing multiple operators increasingly acquiring in the North as they are seeing more value than in saturated areas such as Birmingham and the South East, however we have been generating multiple bids on practices which is creating competitive tension and driving prices higher. There has also been a huge drive from private equity backed groups such as Portman and Dental Partners at the top of the market, which is likely to continue.
There has been huge residential and commercial development, particularly in Manchester, which will increase population density and the demand for additional dental services. The UK has become very health-conscious with a greater proportion of people visiting the dentist, which increases the demand for services. There is also a greater demand for cosmetic treatments such as white fillings, Invisalign, Botox & fillers which is fuelling the market for full private practices and dental spas, particularly as the NHS continues to squeeze funding. In 2018 we welcomed Olivia Allison, who joined the dental team in Manchester, strengthening our position in the North, as we focus our efforts on being the most active dental agent in the region.
Deal volumes are up principally due to significant portfolio activity at the start of the year, although there has also been a significant number of high quality single asset transactions over the last 12 months. We expect a slight slow down next year, as a high proportion of recent acquisitions have been taken by longer term investors. With regard to transactions, there is still competitive demand for trophy assets particularly those with long standing revenue and sustainable healthy profit margins but there is no doubt that prospective purchasers generally are adopting a far more considered approach to spending money.
Manchester city centre is approaching hotel bedroom stock of 18,000 and these high levels of new supply are highly likely to impact upon trading performance affecting both occupancy and room rate. Increased bedroom supply has had an impact on ADR in terms of trading performance, however hotel occupancy across the region has continued to be strong in the main this year. This is predominantly due to the increase in staycations and an increase in international tourism due to the weakness of the Pound.
Accessibility to the region is also increasing, as Carlisle Lake District Airport has begun scheduled passenger flights from Southend, Belfast and Dublin opening up the National Park to a new customer base. Additionally, the introduction of the HS2 railway line will open up access through Chester, Manchester and Liverpool when it is completed, with investors looking to capitalise and develop in these areas ahead of time.
Overseas investors are particularly active as they seek long term income from prominent local hotels. We have seen significant investment from the Singapore based Fragrance Group, who acquired hotels in both Blackpool and Manchester. Expectations of a quality food offer being provided are increasing, with buyers now looking carefully at restaurant facilities within hotels as an attractive incentive for investment.
The biggest concerns and considerations for hotel owners across the board are both future staff shortages and increased labour costs together with food cost inflation which will all impact upon profitability.
While 2017 was a record year for pub and restaurant sales in the North West, the current scarcity of quality venues has led to a slight downturn in transactional activity during 2018. Given the levels of uncertainty regarding consumer confidence in the sector, many North West pub and bar operators are looking to ‘sweat’ their existing successfully venues, expanding trade areas and introducing letting rooms to boost turnover. In conjunction with the continued expansion of the city of Manchester, we have seen an increasing number of restaurants and bars opening in order to meet its growing popularity and perceived increase in demand.
However, with the downturn in consumer spending, customers have become demanding and often look for a more imaginative offer before parting with hard earned cash. In addition to Gaucho closing all 22 of its CAU restaurant sites during 2018, local high-profile casualties include the closure of Artisan and Manchester House by Living Ventures, citing rising costs and high rents. We have also witnessed the demise of both Odd Bars, as well as Mark Andrew Developments (MAD Ltd), long established forerunners in the renaissance of the Northern Quarter. Quality staff are in short supply and given that national operators make up a massive 40% of the UK’s hospitality workforce this is an issue which won’t go away.
Happily, there is also some good news to report insofar as the requirement and appetite for quality venues in good locations remain high, and this in turn is reflected in improving prices being achieved as and when high quality assets come to the market. This was evidenced by the Brunning & Price acquisition of the Ribble Valley Inns portfolio of four leasehold gastro pubs throughout Lancashire, which were purchased off market in order to increase the company’s presence within the area, and to build a gateway of continued expansion into the Lake District.
Despite continuing nervousness in the market, exacerbated by Brexit and a small increase in bank rates, there remains cautious optimism amongst quality independent operators whom we expect to continue to flourish in 2019.
Our transactions for 2018 look set to be largely similar to those from last year, reflected a maintained and steady market flow. Furthermore, due to the nature of the market and the higher values we are seeing in recent times, we have been instructed by some larger, higher value businesses such as Parrys Supermarket and Mossdale Service Station.
We are in the process of growing our Retail team in the North West, and at the same time some of our newer members of the team have continued to gain significant experience in this fast-paced sector. Our team is working towards growth in transactions next year to build upon the significant growth we have seen across 2017 and 2018.
Manchester’s building boom has continued, translating into an ideal environment for longstanding retail businesses alongside new to industry (NTI) sites to take advantage of the increasing population and custom within the relevant locations.
We are seeing an increasing number of corporate disposals across all of the retail sectors we cover in the region, with the likes of McColls, Co-op, One Stop, MFG & MRH churning some of the lesser performing sites within their respective portfolios to focus on increasing the performance of their premium sites or acquiring other sites with better potential. From these disposals, there are increasing opportunities for independent operators within the region who are best placed to take advantage of this new supply to the market.
Due to the higher values we are seeing in the sector, longstanding operators within the region are continuing to look at disposing of their sites to take advantage of the premium prices achieved. With new challenges and rising costs to face such as the increasing National Living Wage and the future green initiatives within the petroleum sector, some are deciding to exit whilst the market is still high. This trend seems to be likely to continue going into 2019.
Increased demand has led to forecourt and convenience retail also achieving stronger values. We saw this throughout 2017 and 2018 and expect this to continue moving forward into the new year. We are seeing more buyers at both ends of the market, with first time buyers looking to acquire their first retail business alongside seasoned operators looking to add high turnover businesses to their portfolios. We are also seeing an increase in NTI sites in the convenience sector and expect this to continue going forward into 2019.
We are fortunate in the convenience retail and forecourt sectors that we haven’t been affected adversely in terms of value and transactional activity through Brexit or its knock on effects. The demand continues to stay strong as buyers are mostly confident that the implications from Brexit will not affect them too unfavourably. The eleven Wyevale Garden Centre disposals we have undertaken in the region have all garnered a strong amount of interest and offers, with rarely a mention of Brexit.
2018 was considerably more active in terms of deals agreed than 2017 and we have seen a positive appetite for expansion from regional operators across the North West, along with increased numbers of first time buyers actively looking to enter the sector.
Regional operators have invested heavily into distressed stock over the last year, taking poorly run and tired homes out of regulatory and financial issues, which is positive for existing residents and their families. On the flip side, corporates have and will continue to offload unwanted homes which don’t fit their current ambitions. Prices are still sitting at 4-6YP across the region and, while there are some exceptions these are rare, as we expect this pricing level to continue in 2019.