UK holiday parks have enjoyed bumper profits over the last few years with surging occupancy levels on their hire fleet and record sales of new caravans and lodges off the showground. The question park operators and investors in the sector are asking is whether this is a short term trend caused by terrorist attacks in popular holiday destinations over the last few years, Brexit and the weakness of Sterling, or are there other factors in play that will continue to fuel the steady growth in the UK holiday park staycation market.
The holiday park sector in general has exhibited robust resilience to economic headwinds. From the start of the 2008 recession until 2015, holiday parks with strong and experienced management teams were able to maintain and in many cases, grow revenues from their hire fleet and holiday home sales. This was largely achieved by holiday parks offering value for money and the move away from traditional week long holidays to more frequent 3-4 day short breaks enabling operators to increase occupancy levels especially during the shoulder weeks.
The rise in popularity of UK holiday park staycation holidays can be attributed to several factors.
Following the result of the Brexit referendum the price of foreign holidays has been creeping up as the value of the pound has been falling. Affordability is the issue for many holiday makers with the consequence being the decision to take a holiday in the UK. The other knock-on effect is that visiting the UK has become cheaper and the volume of inbound holiday traffic has surged which has benefited the leisure sector as a whole from holiday parks to hotels and tourist attractions.
VisitBritain reported there were 33.3 million visits to the UK in the first ten months of the year (up 5% on January – October 2016) and 39.3 million visits in the 12 months to October 2017, up 7% on the corresponding previous period.
The financial pressure on households remains a key factor in making a decision to holiday in the UK and looks likely to remain so especially with rising interest rates. This is positive for the staycation sector as long as it is still perceived to offer value for money.
Other key drivers for the staycation boom include...
Savvy holiday park operators identified the need to invest in infrastructure and accommodation to attract holiday makers. The source of funding has largely come from 2 main sources:
Parks have seen a steady growth in holiday home sales which is where the majority of profits are derived. For example, buying a luxury lodge from one of the manufacturers and selling it on a quality park in one of the UK’s top tourist spots such as the Lake, District, Scottish Highlands or the Cornish coast can deliver 3-4x cash return on cost. This is one of the ways the parks have been able to continue funding the investment in new holiday home stock and park infrastructure by reinvesting the profits.
In October 2017, the National Caravan Council reported that 17,505 holiday homes were produced by the manufacturers during 2016 which is up 7.7% over the previous 12 months. Of these, 17,090 were sold on to holiday parks across the UK. Early indications for 2017 sales points to continued growth and the outlook for 2018 remains positive.
The last time there was such high interest in the sector from private equity was in the hedonistic days between 2004 and 2007 where the financial institutions were chasing holiday parks and driving prices up to 13X EBITDA and beyond.
The strong renewed interest in the UK holiday park sector over the last few years has largely been driven by:
Recent mega deals include the acquisition of Parkdean Resorts for £1.35bn by Canadian private equity firm Onex and the sale of Park Holidays to Intermediate Capital for £362m, both transactions occurring in December 2016.
In 2017 and 2018 to date, there has been further activity with US hedge funds entering the market and traditional players in the sector such as, Phoenix Equity Partners and Palastine increasing their investment in the sector.
With the influx of significant capital, the holiday parks have been investing heavily in their product offering with new facilities such as spa & wellness centres, quality food and beverage offerings and the latest high specification holiday homes including some spectacular glamping units.
Going forward, it is vital that investment is maintained so that the parks continue to offer exceptional facilities and provide the consumer with a great holiday experience to rival an international resort. Consumers are demanding high quality accommodation and have come to expect double glazing, central heating and eco-friendly caravans, lodges as standard – if it has a hot tub that is an even bigger draw. Gone are the days when the decision about which holiday park to choose revolved around the evening entertainment - in today’s market, the key driver is the quality of the holiday home. If the holiday parks succeed in achieving this and provide the consumer with high quality value for money holidays then the future continues to look positive.
However, there are economic headwinds to keep an eye on....
Despite the economic headwinds that are moving towards the UK, the holiday park staycation trend is here to stay. A much stronger Sterling and higher Interest Rates could affect the rate of growth but not stop it and given the sectors historical resilience to tough times as evidenced in the years post the 2008 recession, there is every reason to be confident in the short to medium term.