The UK commercial leisure market has experienced a sharp increase in investor demand which, combined with a continued lack of available product, has resulted in prime yields moving in by 50 bps from 6.75% in Q4 2010 to 6.25% in Q2 2011, according to data provided by real estate advisor Savills.
The UK commercial leisure market has experienced a sharp increase in investor demand which, combined with a continued lack of available product, has resulted in prime yields moving in by 50 bps from 6.75% in Q4 2010 to 6.25% in Q2 2011, according to data provided by real estate advisor Savills.
The firm is predicting a further inward movement of leisure yields to 6.0%, but only in case a prime asset is traded before the close of 2011.
'There are exceptions but overall cinemas, restaurants and café bars have continued to trade well throughout the recession and investors are now recognising this,' commented Andrew McGregor, investment director at Savills.
Throughout 2010 buyers in this sector were restricted to UK funds or equity rich PropCos, but the market is now seeing new buyers emerge such as the REITS and asset managers or risk motivated buyers as banks become more willing to lend. For example, Land Securities has recently acquired Kingsmead, Bath whilst British Land took the opportunity to secure Virgin Active’s sale and leaseback deal.
Over the last 12 months banks have shown an increased appetite to lend and there has been a willingness to look at the leisure sector. The criteria for lending in this market has been two fold with banks favouring long established clients with proven track records, and considering new investors where the leisure content can be supported. According to Savills, properties with long leases, good covenants, strong trade and synergy with nearby retail will meet the criteria. For these types of clients and assets the maximum loan values remain at 65% and the margins for the best product are in the range at 200-250 bps.
