Leisure market prime yields drop to 6.25% Savills finds

Published 19th Sep 2011

The leisure market has experienced a sharp increase in investor demand which, combined with a lack of available product, has resulted in prime yields moving in by 50bps to 6.25% in the second quarter of 2011, Savills research has shown.

Savills predicts that there is a possibility for a further inward movement of leisure yields to 6%, but only in the context of an absolute prime asset if traded before the close of 2011.

The boost in activity is thought to indicate a greater understanding amongst buyers that the leisure occupational market has remained robust throughout the recession, particularly given the uncertainty in the retail sector.

Andrew McGregor, investment director at Savills, 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 PropCos, 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. For example, Land Securities has recently acquired Kingsmead, Bath while 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. Maximum loan values remain at 65% and the margins for the best product are in the range at 200-250 bps.

Source: ' Property Week '

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