The full impact of the recession continued to hamper transactional activity and reduce average property values across the hotel, pub, restaurant, leisure, care and retail sectors during 2009, according to Christie + Co’s Business Outlook 2010 publication.
The report shows that values in the hotel sector reduced by 19.5% during 2009, whilst the pub and restaurant sectors witnessed declines of 20.1% and 18.1% respectively. The care sector reported a fall in values of 11%, whilst the retail sector experienced a reduction of 9.8% in average values.
For the first time, the publication also reported the movement in average property values from the peak of each respective market. Hotel values experienced a c.34% drop since the hotel market’s peak in Q3 2007, whilst pub values fell around 29% from the pub market’s fourth quarter peak in the same year. Restaurant values, which peaked in Q1 2008, fell c.30%, with care sector values falling around 26% since the market’s peak in the third quarter of 2007. Finally, retail values saw a c.16% fall after its market peaked in the second quarter of 2007.
Despite transaction levels again being hampered by the wider economic situation, there were encouraging signs of increased activity across all of Christie + Co’s specialist sectors during 2009 compared to the previous 12 months.
David Rugg, Chairman of Christie + Co, said: “2009 was another difficult year in the business property sector - a year that many were relieved to leave behind - but one that also provided a number of encouraging highlights. Transactional activity, which dropped from a frenetic peak in 2007, to a relative trickle at the end of 2008, finally found its base level during 2009, as buyers tentatively moved back into the market.
“Although trading conditions proved tough across all sectors, operators successfully mitigated losses by focusing on reducing costs and providing value for money goods and services. It is worth noting that most of the business failures in our sectors were due to overleveraging, or unsustainable rent commitments, rather than as a result of poor trading.
“The volume of single asset transactions was reasonably steady and frequent across all our 15 UK offices, although funding and due diligence issues lengthened the process. Well priced businesses - from corporate disposal programmes in particular - were keenly sought-after.”
Distressed cases, which accounted for a large percentage of transactional activity during 2009, will continue to be brought to the market as trading conditions remain challenging and banks shake out further problem cases. Christie + Co’s Bank Support and Business Recovery team worked with a growing list of clients during the year, assisting in more than 350 distress cases, involving over 1,600 assets.
Rugg continued: “Funding will continue to be a key issue in 2010 we are seeing the first new-to-sector lenders emerging, which benefit from not possessing satiated loan books. Independent buyers, with a good level of equity, successfully secured the funding they needed to do deals in 2009 - often with the assistance of Christie + Co’s sister company Christie Finance - and we are confident that individual transaction volumes will be maintained in 2010, with experienced operators again at the forefront of activity.”
“Whilst the causes of the recent recession are very different to those of previous recessions, there are many extraordinary similarities when we compare their paths. In fact, the movement in transaction volumes, seen since 2007, mirrors what we witnessed in the late ‘80s and early ‘90s. If the transactional pattern continues to follow that of the previous recession, we have reached the bottom of the market and a gradual recovery is in prospect.”