We issued our 2023 Forecasts in December and this series of blogs will outline the predictions across the major property sectors.
In this article we hear from experts from the Colliers Licensed & Leisure, Hotels and Operational Capital Markets teams who will take a broad look at the macro trends we expect to see over the coming year.
James Shorthouse – Head of Licensed & Leisure
Whilst transactional volumes slowed in Q4 2022, investors are expressing confidence in 2023. Good quality assets will prove resilient, whilst underperforming or underinvested properties will bear the brunt of price reductions.
Supply chains and input costs will remain pressured in 2023 due to the war in Ukraine. Time will be required for producer and supplier functions to normalise should the conflict end. Likewise, Brexit labour shortages will continue to challenge healthcare, hospitality and leisure businesses across the UK.
Debt cost and availability will be an issue in 2023. Inevitably some businesses will fail, however the speed of recovery for leisure after COVID lockdowns gives reassurance that medium-term demand-side fundamentals remain robust.
Marc Finney – Head of Hotels & Resort Consulting
There’s no escaping that costs are growing rapidly. Labour often comprises 30 to 40% of hotel revenue, especially those with substantial F&B components. Food costs are also an issue and energy costs are becoming unsustainable, with little relief in sight.
New commercial rates have not benefited hotels. Thirty years ago, rates were<1% of hotel revenue. Today, rates are routinely 5 to 6% of revenue, or 15 to 20% of net profit which is almost as high as corporate income tax. Predicting an end to this imbalance in 2023 is foolhardy given recession and promises of more tax rises.
Transactions fell in 2022. The gap between buyer and seller expectations is wide and will not narrow until mid-2023. Patience is required by the wall of available capital. New development is problematic as finance and construction costs rise, impacting appraisals. We expect further slowing in 2023, but site purchase opportunities may rise.
Paddy Allen – Head of Operational Capital Markets
In 2023, operational sectors will remain largely under-built. This may mean less yield expansion, particularly where competition for quality remains high and viability means further supply restrictions.
Student accommodation and build to rent will prove their non-cyclical characteristics once again in 2023 and remain near the top of many investors’ targets, particularly those who are traditionally underexposed to such assets.
Inflationary pressures will impact values directly as operational costs increase, but higher costs will be balanced in part by rental increases over a similar period. The granular nature of an operational income profile means these assets are a quasi-hedge for inflation. This can act to lower the ‘lumpiness’ of cashflows in comparison to traditional sectors.
Andrew White – Head of UK Residential
Predicting 2023 is difficult as planning becomes problematic and expensive build costs rise further while government policy is less supportive. However, as an investment, housing has weathered many storms and will continue to do so.
We believe transactions will fall from the 1.25 million seen in 2021/22 to c.1 million in 2023 with price falls of 5 to 10% for a limited time. Given the size of the UK residential market (£8.5 trillion) and its importance to the UK economy, lenders already sensitive to competition, will feel pressure from government to moderate fixed mortgage rates.
The BTR sector attracted considerable investment in the last two years. With private buy-to-let landlords exiting the market en-masse due to tax and mortgage rate pressure, build to rent will feel a boost, especially as rents rise to match increased costs.
