Holiday parks
Navigating challenges and embracing opportunities
The last few years have been extremely positive for holiday park businesses as, once again, the sector has demonstrated its resilience.
At the time of writing, we have valued 75 holiday park businesses in 2023 and almost all reported increased revenue in 2021/22. The desire to escape urban areas during periods of lockdown, then resume leisure activity once they ended, led to a surge in demand for second/holiday homes, particularly new and late-model used caravans and lodges. One headwind was the availability of new caravan stock due to supply chain issues and this restricted sales volumes, but increased demand drove an increase in selling prices and gross margins. Similarly, whilst operating seasons were reduced, demand for holiday bookings increased significantly with many operators reporting improved revenue, driven by increased tariff and occupancy associated with the pent-up demand created during periods of lockdown.
From a transactional perspective, 2021 and 2022 were bumper years for the sector at large, with several corporate-level transactions including household names such as Haven, Butlins, Park Holidays and Away Resorts changing hands.
During 2022, the Colliers’ UK business transacted 23 holiday and caravan park assets with an aggregate value of £150 million, and the Charteroak sale off a guide price of £10 million was a significant south west transaction.
In short, it is difficult to recall a period of such intense market activity.
The first half of 2023 has seen a slowdown in both trading performance and transactional activity, perhaps inevitably after such a busy period. The sector has felt the impact of sustained high inflation and increasing interest rates. While not immune to these economic pressures, the sector has proven its resilience during previous economic downturns. So what is the outlook as we move into the second half of 2023?
Threats
From a trading perspective, caution remains. Inflation impacts upon holiday park businesses directly through increased operating costs, particularly increased energy costs but these have already fallen from their August 2022 peak. Indirectly, inflation means a contraction in discretionary spend and this is perhaps the greater concern. On the ground, operators are reporting a slowdown in holiday home sales. It is too early in the season to know where holiday bookings will end up, especially as booking habits are becoming increasingly last minute. However, there is an acceptance that the post-pandemic peak was unsustainable and if occupancy and tariff returns to 2019 levels that would be no bad thing.
Opportunities
The fundamentals are good...in today’s fast-paced world, people value and prioritise their holidays perhaps more than ever. They may fall within the category of discretionary spend but to most they have become a necessity. The sector has a long-held reputation for providing value for money and has historically performed well during economic downturns as a result. An inherent strength of the sector, something that has underpinned its continued success, is the ability to adapt.
It is possible to switch between operating models with relative ease and whilst the economic context may make holiday home sales more challenging, it suits holiday lettings.
As temporary accommodation, caravans can be updated to keep pace with consumer trends and demands and provide far more flexible accommodation than traditional buildings.
The resilience of the sector is underpinned by the investment and innovation that has taken place over recent years. This has vastly improved the domestic holiday park product and elevated it beyond what was historically a budget and fairly homogenous offer. More of the same will be required as consumers continue to tighten their belts and, with an expected reduction in overall demand, operators will be challenged to find ways of maintaining or growing their market share. Maintaining quality and, particularly, cleanliness is essential in today’s world of online reviews. Presenting a product that is fresh and innovative is key especially when consumers will choose their holiday accommodation based not only on the old fundamental of location but on how it appears across a news feed. Floating lodges, treehouses and geodesic domes are all things that can be found in the south west already, they provide a wow factor and look fantastic on customers’ Instagram accounts and I expect to see them become more prevalent.
From a transactional perspective, the rise in interest rates has slowed activity in 2023 and the debt finance market is certainly more challenging than a year ago. However, demand remains and we currently have 11 holiday park assets in solicitors’ hands, with an aggregate value of more than £600,000. We are in regular contact with ready, willing and able purchasers who have active requirements.
Overall, while there are headwinds we expect the holiday parks sector to demonstrate its resilience once again.
Amy provides valuation and agency advice to a range of clients including banks and operators, specialising in holiday parks and home, although her expertise also extends to the wider licensed and leisure sectors where she has advised upon a wide range of assets, from pubs to visitor attractions in the south west.