Average business property prices in most sectors recovered somewhat during 2014 as the economic improvement, allied to an increase in buyer demand, saw regular examples of businesses selling for above their asking price — that’s according to Business Outlook 2014, the annual state of the markets report by specialist property adviser Christie + Co, which was launched on 14th January 2014.
Across the leisure, care and convenience retail sectors in which Christie + Co operates, prices increased by an average of 2.35 per cent in 2013, with significant rises in hotel, pub and restaurant average prices offset by slight declines in the care and convenience retail sectors.
Christie + Co’s unique analysis, which tracks the average price movements across the sectors in which it operates, showed average price movements in 2013 as:
· Hotels: + 5.7%
· Pubs: + 3.3%
· Restaurants: + 4.7%
· Care: – 1.1%
· Retail: – 1.0%
Rob Kinsman, Regional Director of Christie + Co, says: “Looking back on 2013, we predicted that we were at the bottom of the value trough, but that opportunities to acquire assets would still be present. Today, we can say that whilst there have been variations between sectors, on the whole our assertion was vindicated on both counts. Even the slight falls in average prices in care and retail fail to recognise a recovery in each of these sectors in the second half of the year.”
Whilst the number of businesses coming to the market as a result of distress fell significantly across 2013, Christie + Co believes there will be further such investment opportunities in 2014 as a result of the continuing fall-out from the interest rate swap compensation payments and the disposal of non-performing loan portfolios by the banks.
Rob Kinsman adds “We’ve read much of the impact of interest rate swaps, but we now have a number of clients who can look forward to receiving compensation during the course of the year. Many of these business owners will reflect, after five years of struggle to maintain their businesses, that there is now a good opportunity for change. We therefore predict that many businesses will come to market following this period of reflection by their owners.”
NPL disposals should boost transactional market
During 2013, De Montfort University reported on an outstanding £62bn of commercial property loans carrying a loan-to-value ratio of greater than 100 per cent and £46bn carrying an income to interest cover of less than 1:1. Christie + Co has identified that around £12bn of assets still controlled by banks are within the sectors in which the company trades. This suggests that around 20 per cent of the assets securing commercial property that remain to be disposed are in our sectors.
Rob Kinsman continues: “The good news is that we believe the markets in which we operate are now strong enough to absorb this overhang through a well-co-ordinated disposals programme over the next two years.”
The transactional market was further boosted in 2013 by a significant increase in the percentage of first-time buyers entering the leisure, care and convenience retail markets — the number of first-time buyers has almost certainly doubled over the last five years.
Kinsman adds: “This is, perhaps, unsurprising given the Government’s incentives to stimulate the residential property market. The relevance of this market is, of course, that the first-time buyer will invariably sell a residential property in order to provide his or her seed-corn capital. The first-time buyer also has a considerable impact on the market mechanism and liquidity as a whole, as business owners trade up in the size of businesses they own and operate.
“There has also been a resurgence in the demand for lifestyle businesses — typically in coastal and country areas. It is a sign of renewed confidence in the economy when individuals — often in mid-life — are prepared to relocate from their homeland origins in order to embark on a new business venture. The good news for these and other buyers is that finance continues to be available from an ever-widening range of sources — albeit at prudent loan-to-value ratios.”
Looking ahead, Rob Kinsman concludes: “Our prediction is that, in future years, business owners and entrepreneurs will look back at this period as being a cyclically outstanding opportunity for acquiring well-priced assets.”