Despite the view that the COVID-19 pandemic will have a lasting impact on the alternatives property sector, Christie & Co report that 2020’s challenges have allowed many areas of the leisure industry to show incredible levels of resilience in adapting to ever-changing conditions, with the sector continuing to prove itself as a sustainable investment option.
Reflecting on market activity, the report notes the uncertainty caused by the virus influenced a lack of supply in 2020, which resulted in a high level of competitive interest for the limited amount of quality opportunities on offer, particularly freehold businesses. As a result, pricing remained broadly similar to pre-COVID levels. Conversely, values for leasehold businesses were suppressed, particularly those where trade has been slower to return, such as cinemas and city centre entertainment and leisure venues including gyms, which remain quiet, due to social distancing and remote working.
A key trend which emerged in July 2020, was the increased demand for outdoor related businesses, such as golf courses, holiday and caravan parks and outdoor activities, due to their increased capability of trading well in the face of social distancing measures. Similarly, leisure businesses in rural and coastal locations across the UK were clear winners in 2020 due to the trend of localisation and an increase in domestic travel, driven largely by international travel restrictions.
Looking to the year ahead, the report highlights that concerns around business viability and unemployment rates are likely to lead to reductions in overall household discretionary spending in 2021. In saying this however, the Office for National Statistics (ONS) reports that more than one-fifth of usual household spending on the likes of dining out, holidays, leisure activities and ‘big ticket’ purchases has not been possible during the various 2020 lockdowns. As such, considering all bodes well with the current vaccination programme, Christie & Co predict that from Q3 onwards we will see a spike in spending and increasing demand for leisure assets in 2021, with well invested assets in key locations of most interest to investors.
Other market predictions featured in the report include:
- The ongoing threat of limited trading and reductions in household discretionary spending may lead to a significant increase in distressed leisure assets coming to market from Q2.
- Private equity will deploy significant, cross-sector capital towards M&A activity.
- The proposed end of the Eviction Moratorium in March 2021 may lead to a number of confrontational landlord and tenant situations (unless extended) and there may be a move towards more turnover/profit related landlord and tenant relationships going forward as a result.
- Outdoor businesses and venues which capture staycation trade will continue to benefit from the increase in domestic demand. Strong buyer appetite for these types of assets may lead to more competitive bidding.
Jon Patrick, Managing Director of Leisure & Development at Christie & Co comments, “2020 has been a hugely challenging year and the disruption caused by the pandemic has been off the scale. Even the most established and financially well positioned of businesses were severely tested and sadly, some have succumbed. We envisage the levels of business failure are likely to increase during 2021 as the various levels of financial support start to drop away – and yet, the pandemic has shown operators to have phenomenal passion and resilience. Those that have been able to embrace and adapt to change most quickly will surely come out stronger. Given the likely increase in business opportunities coming to market during 2021, aligned with the sheer volume of capital awaiting deployment, I can see the next couple of years delivering significantly greater transactional activity across the wider leisure market.”
Click here to read the full report, ‘Business Outlook 2021: Review. Realign. Recover’.
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