The vast majority (94%) of property investors are looking to retain or increase their level of leisure property assets over the next 12 months, with restaurants the most sought after assets, according to a new survey from Coffer Corporate Leisure.
The first Leisure Property Investment Survey, which questioned over 2,000 active property investors, found that 74% considered leisure property to be an asset class in its own right. Restaurants (59% of investors), pubs and bars (45%) are the most sought after leisure assets, while only 9% would consider investing in nightclub assets.
The survey also found evidence of a two-tier investor profile emerging in the sector. The most sought-after deal size was in the £1m-£5m bracket (45%), which comprises demand from small private investors, property companies and small institutional/pension funds.
This lot size typically encompasses restaurants and pubs (referenced earlier as the most popular leisure sub-sectors), which have generally enjoyed robust trading performances. Whilst there is significant demand from primarily institutional/ pension fund investors for larger, £10m+, deals, the supply-side has been slow to meet this.
Mark Sheehan, managing director at Coffer Corporate Leisure, said: “Our survey suggests the increasing popularity for leisure investments will not abate, particularly restaurants, and evidence that a two-tier investor profile is emerging for the sector, with the most popular lot sizes being the private investor-led £1m-£5m range and the institutional/op-fund driven £20m plus range. What is also clear is that cash will continue to be king, with the dearth of available finance stalling investment ability for 85% of respondents.”
Almost all investors surveyed said they are looking at London for investment opportunities, but over 50% are also interested in regional UK assets -most preferring major city locations.
The survey found that lack of available debt is significantly impacting the ability to invest in leisure property for over 85% of investors.
Only 50% of respondents considered the trading performance of the actual unit, with trading performance of the tenants, financial strength of the tenants overall and prospect of rental growth potential (55%) the main factors considered by investors when investing in leisure property.
The survey found that in regards to projections for quantity of leisure assets over the coming year, 32% believed it would increase, while 48% said it would remain static.
Sheehan said: “Whilst enthusiasm for leisure property has been increasing, the sector remains a fairly minor element in percentage terms of investors’ portfolios. Over a third of those sampled have less than 5% committed to leisure property. Less than 10% have over 25% of their assets vested in leisure property. More than half the respondents have between 5% and 25% of their portfolio allocated to leisure.”
Sheehan said that leisure property returns in 2012 surpassed that of 2011 and that nearly half of investors believe leisure property’s performance has improved across the last 12 months.
He said: “Given the economic climate of the previous five years, many investors might have felt it would be pretty difficult for performance to have declined last year. But, notably, nearly a third of those citing an improvement, confirmed it had improved ‘significantly’. Whilst on balance the general performance has been positive, it is clear that the market has experienced mixed trends across the leisure sub-sectors and, indeed, geographical locations.
“We have long championed the cause for leisure to be considered a property asset class in its own right. Over 70% of investors now see leisure property as a definitive asset class, while less that 20% still believe it has yet to establish itself.
“This development is a result of several trends observed in the leisure and retail sectors. Due to the fundamental distress in the retail sector, many investors are turning to leisure investments; this has created a liquidity and demand for distinctly ‘leisure’ assets. Confidence in leisure assets has been underpinned by lengthy lease terms, strong rental growth/ indexation, robust consumer demand and the industry’s inherent immunity to online shopping.”