The stabilisation of business property prices recorded in 2010 has been put into perspective following another turbulent year for the economy and financial markets, according to Christie + Co’s Business Outlook 2012 publication.
A year ago, Christie + Co was able to conclude that average business property prices across the hospitality, leisure, care and retail sectors had achieved a marginal increase of 0.3 per cent, and optimistically cited a possible emergence from the bottom of the value curve.
However, according to Business Outlook 2012, which uses average price information derived from transactions brokered by the company across its specialist sectors, business property prices fell by an average of 2.48 per cent in 2011.
The average price movements across the sectors saw a 1.1 per cent decline in the pubs sector, 3.3 per cent in care, 3.6 per cent in convenience retail, 4.1 per cent in restaurants and 5.1 per cent in hotels.
On the flipside, and indicative of a market where the demand for quality outstripped supply, Christie + Co reports a significant increase in the quantity of offers made for businesses, particularly in the hotel sector, where the number of done deals also increased.
David Rugg, Chairman of Christie + Co, is quick to put the year into perspective: “Twelve months ago, not even the gloomiest forecaster would have predicted the depth of the recession nor the extent of the crisis engulfing the financial markets, particularly across the Eurozone.
“Therefore, the plateauing of property prices in 2010 must now be viewed as a step towards prices once again settling at a lower level I 2011. However, it should be acknowledged that yield ranges remain on a par with those seen in the 1990s.”
Market remains robust
Administrator-led business sales were more common, though not exclusive, during 2011. This enabled the market to demonstrate its robustness, says Rugg.
“The fact that the market was able to absorb the number of businesses being made available for sale is surely a sign that the market mechanism remains as effective as ever, even as values change. The market has not stuck which is an encouraging signal for what will remain a tricky period ahead of us.”
Funding hopes tinged with caution
While high street lenders were in 2011, and remain today, understandably reluctant to increase their exposure in the sectors in which Christie + Co operates, there are some optimistic signs for a return of debt finance.
New lending vehicles such as Sir George Mathewson’s Shawbrook Bank, regional development funds and online loan/exchange facilitators are all offering encouragement. However, David Rugg sounds a note of caution.
He says: “We have a slight concern that the majority of funding is aimed at small businesses. Whilst this is heartening for this market, it could leave a drought of debt finance for larger transactions and, crucially, for start-ups which were not well served by the Government’s Project Merlin funding.”
Looking forward
Looking ahead to 2012, David Rugg says that there is likely to be an increase in opportunities and transactions.
He says: “We can expect a good supply of business offerings early in the year, especially as the banks and their customers will remain committed to dispose of assets in order to reduce gearing. Increasingly we will see the sale of ‘trophy’ assets as operators view the value as disproportionate to the commercial return. We’ve already seen Enterprise Inns, for instance, outline its strategy to off-load some of its best 100 pubs.”
With better quality assets on the market, Rugg envisages genuine opportunities for both niche investors — especially those with cash — and new investors.
He adds: “With graduates facing the stiffest competition for jobs that we’ve witnessed for many a decade, some might seize the opportunity, supported by the ‘bank of mum and dad’, to create and purchase businesses. Those that do will bring that youth and enthusiasm to it that will appeal to their own generation of connected customers.”
Rugg concludes: “Emerging investors, fresh ideas and new businesses should be encouraged more than ever as we continue to face up to economic conditions that once again look certain to dominate the year ahead.”
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For further information on this press release please contact Peter Fermoy, head of media relations, Christie + Co on 020 7227 0794 or peter.fermoy@christie.com
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