Following the strongest trading period on record provided by a pronounced bounce following the pandemic, the current downward trend in the economic cycle is once again testing the resilience of the holiday park sector and its defensive qualities.
From an operational perspective, the major operators are reporting a marked slowdown in caravan and lodge sales, particularly for luxury and mid-market products; demand for budget models has remained relatively stable albeit not as strong as previous years. Previous supply chain issues are being reversed and the slowdown in sales has led to most manufacturers of caravan and lodge products having stock in hand.
In response to fewer sales of holiday units, many operators have reverted to a mixed operational model, increasing the size of their hire fleet (holiday lets). Encouragingly, operators are reporting occupancy levels being sustained in line with pre-pandemic levels although bookings for letting caravans and lodges have become more last minute.
There is little doubt that the appetite to acquire parks remains; however, many institutional backed buyers of holiday parks, which dominated the marketplace from the beginning of 2021 until mid-2022, have withdrawn temporarily from the market. In the last year the transactional market has been dominated by independent operators acquiring individual sites or smaller groups. Overall the quantum of transactions has, at least until recently, remained relatively constant but due to the smaller lot sizes, overall investment volumes are down on 2021 levels. Latterly, cautiousness from buyers has started to manifest itself and protracted transactions and a reluctance to commit has become more common, especially where bank funding is required. Vendors are slowly adjusting to the recent transformation to a ‘Buyer’s market’ and there is now some evidence that purchasers in cash positions have been able to acquire sites at more favourable prices when compared to the same time last year. The more cautious outlook stems from the Bank of England’s successive interest rate hikes which at the time of writing stood at 5.25%.
The parks coming to the market have until very recently been largely driven by personal circumstance such as retirement sales although the ongoing cashflow difficulties of one of the largest groups forcing administration of part of its portfolio will undoubtedly have a short term effect on the market. For the moment, many operators with premium holiday parks are choosing to focus on asset managing their existing portfolios in the form of selective capital expenditure programmes and cost base control.
On a more positive front, recent figures suggest that inflation has started to wane, with the hope that this will translate to increased levels of consumer confidence. Once interest rates have peaked and then start to come down, the lower cost and greater availability of debt may also help fuel an increase in transactional activity. There is, without doubt, a wall of institutional capital that remains hugely attracted to the defensive qualities of the sector with many investors expected to go into acquisition mode, as soon as wider market conditions start to ease.