Leisure interests are an important part of most estates’ revenue streams, but how can you make sure you’re making the most of your assets?
Running an estate or farm hasn’t been just about growing crops or raising livestock for a number of years. As the capital returns from agriculture have fallen in real terms, the need to make land and assets work harder to raise as much income as possible has grown. Most significant landowners now have some leisure interests somewhere on their property. It makes economic sense: diversification doesn’t just provide a more stable income stream, it also develops the opportunity for capital growth.
The Savills Estate Benchmarking Survey shows that last year, average gross returns of diversified interests increased by 5.3 per cent to £212 per acre. Within this, income from commercial enterprises increased 21 per cent – a bounceback from the previous two years.
The economy has had an influence on the types of interests landowners are now developing. Things have moved on considerably from the days when farmers would not look much beyond seeking a second income streamfrom within the family: adding a shop, renting the odd cottage, or – at the more ambitious end of the scale – turning their fields into a golf course.
“Golf course development stopped dead in 2008, because the capital suddenly wasn’t there to do it, and the returns were becoming less certain,” says James Higham of Savills Leisure andTrade. “The trend now is to concentrate on leisure uses that cost less to develop, less for people to get into and offer more certain returns.”
The usual suspects are still popular. “Holiday cottages are always good, because you can move in and out of the sector easily, and these homes can often earn more from short-term lettings than a long-term annual one, although it is more work,” says James.
Fisheries, caravan sites, farm shops and equestrian centres are also still alive and doing very well on numerous estates in all parts of the country but there are some new opportunities.
"The biggest winery in the UK used to be a Surrey dairy and pig farm. Someone told them they had the same geology as the Champagne region"
“Solar farms are proving popular,” says John Wootton, director of Savills Rural. “Also weddings, if you’ve got a big barn, even festivals, if you’ve got a decent hook for it.”
Vineyards have also exploded over the last decade, with a growing interest in wine, and the realisation that the British can do it well. “It takes a while to establish a vineyard, but there are no planning permission issues and it can be very profitable. I was just looking at 20 acres of vines on the south coast, turning over £200,000 a year,” says James. “Indeed, the biggest winery in the UK used to be a Surrey dairy and pig farm. Someone told them they had the same geology as the Champagne region. Now they’ve got a winery, café, conference centre, garden centre and microbrewery. All from one lightbulb moment.”
Even burial sites are becoming a popular choice. With local grounds filling up and attitudes towards funerals becoming less formal, rural woodland graves (at up to £9,000 a plot) are becoming more popular.
Pubs, meanwhile, remain a difficult business, although a lot of estates continue to operate them at breakeven or a loss, simply because of what they add to the area. “They keep the holiday cottage occupants and locals, including employees, happy,” says John.
With all these options available and doing well, how should landowners considering major changes identify the right direction for them? “It depends on who you are,” says James. “The first thing you need to be is interested in what you’re doing. There is no point in developing a business enterprise that involves a huge amount of working with people, if you don’t like people. Your choice needs to excite you.
“If it does,you’ve then got to check on the competition. Is there anyone else in the area doing this? Are they doing it in such a way that you can do it differently or better? Is there enough demand in the area?
If there is an under-supply, then they won’t be threatened, or cut prices. But if you think you can simply undercut someone, the moment you apply for planning permission, a rival will cut their prices by 25 per cent to keep the sector.”
As with any business, you need to consider where possible problems could arise too. Planning and neighbours need careful consideration. Landowners can make a certain amount of changes to their property without permission, but start making it permanent and you’ll need permission. Access to finance is also an issue. Have you got the money? Or can you borrow it at a rate that works for the project? Will there be enough profit while you are repaying the loans?
On the plus side, if things do go wrong, land can usually be returned to agriculture without too much trouble. Which brings us back to those golf courses. “A lot of courses, worth a million or so, are reverting to farmland, with roughly the same value,” says James. “It is easily turned back into sheep pasture. You just fill in the bunkers."
James Higham MRICS
Leisure & Trading
+44 (0) 1865 269 023
+44 (0) 1865 269 023
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