“There has been a lot of change in the market as people have retired and new people have taken over...”
It’s been a tumultuous couple of years for the UK holiday lets market – one of the few industries to benefit during the pandemic, owners have also been forced to shut down completely for months at a time. So, is investing in leisure property still a wise investment?
With overseas travel either impossible, financially risky or logistically problematic, the UK’s holiday sector was one of the few industries to benefit from the covid pandemic.
Holidays at home never looked so good.
However, although many properties and sites have been inundated at times, it hasn’t all been smooth sailing.
Lockdowns forced properties to close their doors for months at a time, inflicting a great deal of worry and uncertainty upon the sector. Financial concerns, new rules and regulations and an inability to really plan for the future have all taken their toll.
Setting up a leisure business from scratch
Opening up?
This hasn’t put people off entering the industry, though. Stephen Richards, Head of Rural Leisure at Carter Jonas, reports that diminishing stock is currently an issue as demand means that everything on the market is snapped up quickly.
“There has been a lot of change in the market as people have retired and new people have taken over,” he says. “It hasn’t stopped for the past couple of years and now we’re in the situation where we’re running out of stock.”
Stephen identifies three distinct categories of buyer driving the present demand. The first is typically aged 45 to 55 and looking for a semi-retirement project to run alongside their job, which can now be done from home most of the time.
“Then we have corporate buyers who are already in the leisure industry but want to diversify their portfolio,” Stephen explains. “For instance, they may have invested heavily in hotels but, in case something like Covid ever happens again, they want to add self-catering to their offering.
“Finally, the third buyer is someone already in the industry who has done really well and is looking to add to their offering.”
Top of buyers’ wish lists are glamping and camping sites. “There has been an upsurge in demand for marginal pieces of land – we’re inundated when those come on the market,” says Stephen.
“Setting up a glamping site is a cheap way of entering the industry – building a lodge costs a lot of money, but glamping units are quicker to set up and cheaper, so a lot of people are looking for land on which to place such an enterprise.”
The pandemic has potentially increased the scope of the ‘staycation’ market, with many people venturing further afield to avoid crowds.
“Normally, most people automatically head somewhere like Cornwall,” Stephen says. “But right now, it’s just too busy so people have really explored the four corners of the UK to avoid Covid and crowds.
“They’ve realised that other places are cheaper and not as crowded.”
Stephen predicts there will still be a demand for domestic holiday options in the future.
“A UK holiday is the easy option – there’s no stress or waiting around in airports,” Stephen says.
“It will come down to price as many people have put theirs up – if someone is looking for a half term holiday and it comes out as £2,000 for a break abroad or £1,500 for a cottage holiday, the latter could be difficult to justify.
“However, some people will remain cautious about Covid for the next 12-18 months, even if all the restrictions are removed. And some will never return to their former lifestyles.”
Stephen believes the next two years will remain unsettled.
“Inflation and interest rates are both going up,” he says. “These are all indicators that the market is overheating.
“However, some people will remain cautious about Covid for the next 12-18 months, even if all the restrictions are removed. And some will never return to their former lifestyles.”
“As the cost of living rises and people begin to feel the pinch, they may well decide that they can’t afford to go abroad. So, as the market turns, you may find that the UK holiday industry benefits, because people will tighten their purse strings.”
Depending on the impact, Stephen believes one possibility is a rise in redundancies, which could lead to even more demand from new buyers wanting to enter the market.
“From 2008 to 2010, I dealt with a lot of people who were made redundant – many turned their attention to the leisure industry and bought themselves both a business and a job,” he explains. “That could happen again, depending on where the economy goes.”
There is undeniable appeal in purchasing an established business, but many farmers and landowners are opting to create a holiday let business themselves in a bid to diversify their portfolio.
In this scenario, Carter Jonas’ Sarah Cox advises caution.
“The reality is that planning permission and building regulations always need to be the first steps,” Ms Cox says.
“Business owners need to have a development and investment strategy in place at the beginning and they need to ensure they do things in the right order and within the right timescales, while ensuring that they are adhering to the regulations.”
Many are tempted to dip their toe in the holiday letting business after seeing a nearby estate or farm profit from a similar project, but Ms Cox says this doesn’t necessarily guarantee success.
“There's a reason why Areas of Outstanding Natural Beauty have been given that designation – they’re heavily controlled to prevent proliferation of buildings or inappropriate structures being created,” she explains. “And the most popular locations for holiday lets tend to have such designations.
"The reality is that planning permission and building regulations always need to be the first steps"
“Each site will be considered on its own merits. For example, the farm down the road might have outbuildings at their disposal which can be converted through permitted development rights that yours doesn’t – you can’t necessarily create what they have.”
Working with local councils can be tricky, Ms Cox admits, as they must consider a raft of planning policies including potential impact upon housing supply which in some areas is becoming an increasing concern.
“Certain places, such as Northumberland, are finding that most of the lights in a community can be off at any one time in low season because they’re predominantly holiday lets,” she says.
“Some communities have really been affected, so some local authorities are now openly discussing whether they need to develop policies to protect their communities.”
Ms Cox warns landowners and farmers never to consider going ahead with projects prior to seeking permission from their local authority as this is a risky strategy that is looked upon unfavourably.
“People sometimes think that they can get around the issue by building something for their own use and then running it as a holiday let on the side,” she says.
“A lot of local authorities are taking a harsh line on retrospective applications and making an example of people who break the rules. Always ask for permission rather than seeking forgiveness.”
There are still fantastic opportunities for creating holiday lets, but Ms Cox warns against cutting corners.
“Don’t be put off, but definitely do everything in the right order and get everything correctly in place well before having anyone to stay, your business strategy should include planning and building regulation compliance” she says.
“Seeking advice from an organisation such as Carter Jonas early on (even before your purchase) will help you negotiate this complex system and achieve your aims with as little delay or stress as possible.”
RHIW GOCH
“The sellers were looking to move on,” Rhys says. “It was a straightforward purchase – our offer was accepted in April 2018, and we had the keys by the beginning of September.”
The lot included two properties: a four-bedroom farmhouse and three-bedroom cottage. Perched above Penrhyndeudraeth in the Snowdonia national park, the peace is only disturbed by the Ffestiniog railway, the oldest narrow-gauge railway in the world, passing through the bottom of the garden.
As existing holiday lets, neither required a huge amount of work once Rhys and his wife had the keys, but the couple chose to add a couple of modern touches – electric cookers to replace the oil-fired Agas, together with dishwashers and hot tubs.
CASE STUDY:
Rhys Anwyl Williams, a sheep and beef tenant farmer in Snowdonia, drove past the ‘For Sale’ sign outside holiday cottage site Rhiw Goch for two and half years, assuming such a project would be impossible for him to take on.
"The lot included two properties: a four-bedroom farmhouse and three-bedroom cottage. Perched above Penrhyndeudraeth in the Snowdonia national park"
Guests were welcomed from September 2019 onwards – and not a day too soon, it would transpire. “To qualify for Business Rates Relief, you need to have had occupancy for 70 consecutive days,” Rhys explains. “We hit 70 days literally on the day we went into lockdown.”
It was a similar story with the Covid relief payments, which amounted to £10,000 per property. “To qualify for that, we had to have 140 days and 70 nights continuous let. Again, we had it on that very last day. If we had been just one day short, we wouldn’t have qualified at all.”
Although Rhys was relieved when bookings start flooding in for the summer post-lockdown, they have found things trickier since, with Covid cases fluctuating and the resulting lockdowns.
“From September 2020, things slowed down as cases began to rise,” he says. “And 2021 was really tricky. We had to have a bounce back loan to pay the mortgage which isn’t ideal – we were paying interest-free for 12 months, but that expired at the end of 2020.
“Fortunately, we were able to open in April 2021 for Welsh guests.
“We then opened up to all guests from May, but we’ve been playing catch-up ever since.”
Rhys’ advice to other farmers and landowners considering starting a similar business is not to worry about things outside of their control.
“Be pessimistic in your business plan, but optimistic the rest of the time,” he says.
Despite a tricky start to their holiday let business, Rhys has no regrets.
“We have been very lucky with the people we’ve worked with,” he says. “Hugh O’Donnell from Carter Jonas has been easy to work with and has stayed in touch ever since.
“And HSBC were excellent during the purchase process and very understanding throughout the Covid period.
“We’re of the opinion that if we’ve managed to get through this then, surely, we can get through anything?” he adds.
“We will have been here for three years this September, but we still haven’t had a full year of business.
“But we’re having a blast. We’ll try our best to make it work. And if it fails? Well at least we tried!”
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