By Max Clarke
The recovery in the wider economy, improvements in trading performance and an increase in transactional activity led to a stabilisation in average property prices across the hotel, pub, restaurant, leisure, care and retail sectors during 2010, according to Christie + Co’s Business Outlook 2011 publication.
Having reported declines in average prices in 2008 and 2009, prices finally plateaued in 2010. Christie + Co’s indices, which are based on analyses of transactions completed by the company in the preceding 12 month period, showed that average business property prices increased marginally, by 0.3%, across its specialist sectors.
Average price movements were negligible in most sectors, with a 0.1% increase for hotels, a 0.4% increase for care and a -0.9% decrease for pubs. The movement in the restaurant sector was more significant, where the company witnessed a 4.6% increase. Finally, in the convenience retail sector, average prices increased by 2.1%. The number of deals completed by Christie + Co increased by 32% during 2010, compared with the previous 12 months, driven by corporate disposal programmes.
David Rugg, Chairman of Christie + Co, said: “We are very encouraged by last year’s transactional evidence since it confirms that prices have reached the bottom of the demand driven price curve. In fact, average prices have increased slightly in some sectors and we are hopeful that this upward trend will continue in 2011.
“What is clear from our analysis of last year’s transactions is that the quality of assets we sold influenced the movement in average prices. For example, Christie + Co sold a number of high quality restaurant businesses in 2010, for operators that included Paramount Restaurants and Smash Foods Ltd. The quality of these assets was much better than many of the independent restaurant businesses we sold –therefore helping to boost the positive movement in average restaurant prices.”
As prices and trading conditions stabilised, the banks were more willing to fund business growth and acquisitions in 2010. Although large portfolio transactions were few and far between, buyers with robust business plans, who sought individual units and small packages, had a good chance of securing the funding they required. Private equity also started to re-engage with Christie + Co’s sectors in 2010 and the company envisages even greater private equity involvement in 2011.
Rugg commented: “There are opportunities for private equity players to add value through reshaping portfolios and implementing buy-and-build strategies. We can expect them to target businesses where high leverage is already in place, which would be difficult to replicate anew.”
The banks enter 2011 in a powerful position. They will not only play a role in the future of the many businesses they support or control, but they will also determine how much capital will be released for new investment in our sectors.
Rugg said: “The banks’ approach to our markets was responsible and informed in 2010. Although our specialists encountered 1,300 distressed assets last year, 80% of the advisory work we undertook was focused on preserving businesses rather than selling them. Not all businesses were preserved in 2010 but distress sales made a valuable contribution to transactional activity – creating opportunities for experienced operators to step in and reopen closed units, or apply new formats to businesses that had lost their appeal.
“Whilst we are confident that the banks will avoid flooding the market with distressed property in 2011, we expect the number of disposals to increase. The January VAT increase, the public sector spending cuts and rising utility costs will test the endurance of businesses that are already being scrutinised by the banks’ business support units. Those that fail to improve their performance will be forced to sell in order to repay outstanding debt.”
A number of events caused hesitancy in Christie + Co’s markets in 2010, including the general election in May and the Spending Review in October. Confidence dips were most evident immediately prior to anticipated government announcements but, once changes had been implemented and likely impacts understood, activity levels increased around for businesses for sale.
Rugg concluded: “Whilst we can expect confidence levels to subside a little in the first quarter in line with the VAT rise and spending cut concerns, we are hopeful that this reticence will be short lived.
“When we consider that the bank rate is still at a record low, mortgages are affordable (albeit harder to secure), business prices have generally bottomed out and trading conditions have stabilised in most of our markets, we expect the growth in buyer confidence already witnessed in 2010 to continue into the coming year. 2011 will hopefully be a period of gradual recovery, during which confidence will return, transactional activity will continue to increase and given stable supply, prices will rise.”
Christie + Co, established in 1935, is one of the leading business agents and advisors specialising in the hotel, public house, restaurant, retail, leisure and healthcare markets.