Christie & Co reports activity across all of its sectors in Scotland remains healthy, with the care and childcare sectors leading the way in terms of deal activity.
Transactional activity in the care sector remains positive against a backdrop of the administration of Four Seasons and sales processes reportedly underway involving corporate operators, namely HC One, Barchester and Care UK. Christie & Co recently concluded the first venture into Scotland for Impact REIT, a fund dedicated to investing in the sector focussing on quality of care and working with reputable operators. They have acquired two homes in Uddingston, which have been leased to expanding Scottish operator, Renaissance Care.
The sector remains filled with opportunity supported by banks, VCTs and REITs, despite ongoing challenges surrounding funding, fees, staffing costs and staffing shortages, with high levels of activity at both the top and bottom ends of the market. The polarisation of the market continues to stretch as competition drives pricing for compliant assets in prime locations higher than previously achieved.
Pipelines suggest transactional activity will continue to improve, dependent on the impacts of Brexit and as New Care Inspectorate inspections and new standards will settle in. The removal of staffing schedules will allow far more flexibility in staffing requirements. If this can be married with a functional cost of care calculator, the sector could be in a much stronger position throughout the second half of the year and moving into 2020.
The Scottish Government pledge to provide 1140hrs of funded childcare to all three and four year olds and some eligible two year olds continues to be the focus for the sector. Figures released in May 2019 revealed that the Scottish Government was a long way from achieving its target of building and expanding 750 nurseries to deliver 1140hrs by the end of 2021. Only 97 nurseries have been built, expanded or refurbished since 2017, representing just 13% of the target. Discrepancies in the approach taken by Local Authorities across the country continues to frustrate operators, particularly where capital funding has been focused on Local Authority new builds where private partner providers have capacity to expand.
As predicted at the start of the year, the limited number of good quality assets that have come to the market in Scotland have attracted significant interest. Buyer optimism continues as larger group operators seek to grow their portfolios through the acquisition of trading businesses, new build sites and expansion within existing settings.
This year, Christie & Co has seen the overall timelines for asset sales extended due to pressures on the Care Inspectorate Registration teams who are processing a significant number of registration variations across the country. As we move past the mid-point of the year, Christie & Co anticipates that these trends will continue and relocation, retirement and distress will continue to be the main drivers for sale.
The dental market remains strong, quality driven and geographically sensitive. Christie & Co notes that multiple operators have increased activity in the Scottish market, as a number of small portfolio operators seek to grow into mid and large sized groups. Moreover, buyers continue to move north of the border in pursuit of value in Scotland, compared to more saturated areas in England, particularly the South. The Central Belt and neighbouring regions, including Lanarkshire, East Lothian, Fife and the Angus region, remain the key focus for buyers in Scotland.
The dental sector continues to be one of the most active in which Christie & Co operates. Christie & Co sold Caledonian Dental Care in Perth, one of the Scotland’s largest and most successful mixed income practices with 19 surgeries and over 40,000 registered patients, to Portman Dental Care, in a landmark sale for the Scottish dental market. This was followed by the portfolio of sale of two practices, comprising a total of nine surgeries, in Paisley and Ralston area, west of Glasgow, to first time buyers. Both sales attracted multiple offers from a range of dental companies and private buyers, highlighting the existing demand for prime dental businesses.
The Scottish pharmacy market benefits from a stable pharmacy contract agreed with the Scottish Government, which recognises and supports the sector’s role in NHS services. Prices in the pharmacy sector have increased significantly as appetite for pharmacy businesses continues to outstrip supply, particularly across the Central Belt of Scotland. As a result, Christie & Co notes an increase in the number of opportunities brought to the market, as operators seek to capitalise on high prices, with the majority of instructions comprising groups of two pharmacies.
Christie & Co reports a positive number of regional hotel instructions, despite some slowdown in terms of buyer activity. Hotels with high levels of profit and consistent trading patterns remain in high demand, however, uncertainty concerning the economic and political landscape has instilled caution amongst buyers at the top of the market. Staffing remains a hot topic, particularity in remote areas of the region. The hospitality trade has always been heavily reliant on foreign workers and the impacts of Brexit have made positions increasing difficult to fill across the sector, as wages increase.
Significant transactions brokered through Christie & Co in the first half of the year include Ramnee Hotel, a small country house hotel in Forres, which received strong levels of interest once brought to the market, and Cringletie House Hotel, castle style hotel set within 28 acres of land in Peebles, which was sold off a £2m asking price to a couple with experience in the hospitality trade.
Pubs & Restaurants
Transactional activity in regional licensed sector continues to grow, especially across the freehold pubs market, with significant interest from corporate and multi-regional operators looking to acquire high quality pubs with a food offering. Restaurants are still proving difficult to generate interest due to high wage costs, general operating expenses and business rates. However, there is reasonably high demand for small restaurants and cafes due low business costs and smaller premiums. Quirky chain restaurants continue to retain majority market share in city centres, while the casual dining market also remains steady, however consumers are now keen to eat ‘on the go,’ a submarket which is anticipated to grow rapidly within the near future.
Christie & Co reports overall interest remains strong within the retail sector, with viewings up 42% year to date, noting a focus on value for money in the low to mid-markets for both leasehold and freehold sites. General activity
across the c-store and sub post office markets remains buoyant, although pricing remains static. Limited supply of quality and profitable sites currently on the market is matched by an increase in turnaround c-store opportunities brought to the market, as well as an increase in off market acquisitions and transactions.
Demand remains high for petrol filling stations of all sizes throughout the region. An estimated 25-30 new to industry petrol filling stations are expected over the next two to three years, with approximately 15 already in planning or with consent. Euro Garages has emerged as an active buyer in the region, having acquired two sites in Glasgow and Montrose through Christie & Co in recent months.
Brian Sheldon, Regional Director – Scotland at Christie & Co comments;
“The year has started off particularly well for Christie & Co within Scotland and we hope that this continues unabated. However, there is still no decision on Brexit and the outcome that this presents, together with the ongoing Scottish independence debate, a degree of caution and uncertainty remains. Our sectors are resilient and adapt to changes, whether good or bad, and our sector knowledge and adaptability makes us well positioned react to any changes and challenges that may come our way.”