EUROPE - Yields on commercial leisure property in the UK have dipped in reaction to heightened investor demand, as buyers become more aware of the sector's resistance to recession.
In its latest report on UK commercial leisure, property firm Savills said: "The 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 basis points from 6.75% in Q4 2010 to 6.25% in Q2 2011."
This shift in yield was wider than that seen for any other real estate sector monitored by the firm in the first half of this year.
The average yield change in the period was 14bps, it said.
Leisure yields could move further down to 6%, Savills predicted, but only on absolute prime assets traded before the end of 2011, it said.
It attributed the boost in first-half activity to a "greater understanding" among buyers who have recognised the leisure occupational market has "remained robust throughout the recession", particularly given the uncertainty in the retail sector.
Savills investment director Andrew McGregor said: "There are exceptions, but, overall, cinemas, restaurants and café bars have continued to trade well throughout the recession, and investors are now recognising this.
"Throughout 2010, buyers in this sector were restricted to UK funds or equity-rich [property companies], but we are now seeing new buyers emerge such as the REITS and asset managers, or risk-motivated buyers as banks become more willing to lend."
As examples, McGregor cited the Land Securities recent acquisition of the Kingsmead leisure and restaurant complex in Bath, and British Land securing Virgin Active's sale and leaseback deal.
Over the last 12 months, banks have appeared more ready to lend and have been willing to look at the leisure sector, Savills said.
When lending, banks have been favouring long-established clients with proven track records, but they are also considering new investors where the leisure content can be supported.
Long leases, good covenants, strong trade and synergy with retail nearby will meet lending criteria, the firm said.
It added: "For these types of clients and assets, the maximum loan values remain at 65%, and the margins for the best products are in the range of 200-250bps."
Banks have also played an active role in the sector by putting leisure properties up for sale this year, Savills said, citing Skydome in Coventry, where the firm instructed to sell the property on behalf of the administrators.
It forecast banks would continue to put strong leisure investment opportunities up for sale provided there was investor demand.