Any changes in the UK cottage complex market are traditionally closely aligned with changes in the UK residential market. Many purchasers in the sector choose to release equity in their homes in order to finance the purchase of a lifestyle business. Some of these purchasers will therefore be equity-backed. However, for the more aspirational buyers, bank debt will play an important role. The current climate of debt availability means that for those purchasers with a reasonable amount of equity and a robust and well-tested business plan, commercial debt is available.
A more recent trend has seen institutional and private equity backed buyers enter the market, seeking well located, larger complexes which offer good stabilised income streams and opportunities to improve profit conversion when added to a trading group. These purchasers will have access to cheap debt and in most cases will look to gear their borrowing to take advantage of this.
Post the EU referendum the market has effectively become two speed, with complexes priced up to around £1.5 million attracting strong interest, while those above this level face more challenges in attracting substantial interest. That said, despite a challenging beginning to the year, well located properties, properly presented and priced appropriately are attracting good interest. Looking ahead to the end of the year, we expect to see a strong second half of the year in terms of transactions.
The UK’s decision to leave the EU has also had a tangible impact on the trading performance of cottage complexes, with properties across the south west reporting year–on-year increases in both occupancy and rate achieved for 2017. There are multiple drivers behind this trend. The fall in the value of sterling has led to increases in costs for holidaymakers travelling abroad, with more people therefore choosing to holiday in the UK.
Additionally geopolitical uncertainty and terrorism related incidents abroad in recent years have also encouraged holidaymakers to holiday at home. A survey at the beginning of the year by Travelzoo of British people found that 52.4 per cent of respondents were planning a holiday in the UK or western Europe for their main holiday. A similar survey in 2016 showed that 29 per cent of Britons had spent their holiday in the UK. Concurrently it has also become cheaper for foreign holiday makers to stay in the UK and there has been an upswing in inbound tourism, particularly from continental Europe.
The continuing diversification of the buyer market and the increased popularity of UK holidays leads us to believe that 2017 will be a stellar year for the cottage complex market.