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2023: A view from our operational real estate teams

Blog 2023 Forecast operational markets hero

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.


Related Experts

James Shorthouse

Head of Alternative Markets

Licensed and Leisure

London - West End

James is one of the UK's leading advisers in Pub, Bar, Restaurant and Leisure sectors. He has worked in the sector for over 30 years, a period during which the sector has undergone enormous changes in its operational, ownership and regulatory structures.

Acting on behalf of major operators, investors and banks on portfolios and high value single assets, James' operator clients include Greene King, Ei group, Casual Dining Group, and Novus. On the investor side, for many years he advised Nomura and Terra Firma, worked closely with Cerberus on all of its leisure sector investments and has recently advised Patron Capital, Stellex and NewRiver.

Within Colliers International, James heads up the UK Licensed & Leisure team and also runs the businesses Alternative Markets Division which encompasses Hotels, Automotive, Healthcare, and other specialist Leisure teams.

Throughout his career James has advised major UK and International lenders, both on new lending and on developing and executing exit strategies for distressed lending positions. His team have worked with a number of F&B operators to rationalise their portfolios and have advised landlords on how to preserve value and retain tenants in difficult times.

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Marc Finney

Head of Hotels & Resorts Consulting

Hotels & Resorts Consulting

London - West End

I have thirty years experience within the hotel and resorts sector.

This covers all areas from line management within operations, consulting advisory and corporate finance and property strategies.

I have even been an owner of my own hotel which I sold at the beginning of 2007.

I specialise in new hotel development and financing solutions within the hotel sector and in Management Agreements.

Resorts are a particular passion and I have a great deal of experience with these from inception to operations

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Paddy Allen

Director

National Capital Markets

London - West End

Paddy has over 16 years of real estate experience having spent his early career in European fund management before joining Global Student Accommodation as an early employee and leading the acquisition of £1bn of student accommodation across UK & Europe. 

Paddy advises a range of investors and developers on transactions, joint ventures and operations predominantly across student accommodation, build to rent and co-living. 

Paddy joined Colliers in 2021.

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Andrew White

Head of UK Residential & International Properties Asia

Residential - Development

London - West End

Andrew heads up the UK Residential & International Properties (Asia) Department at Colliers and is a specialist advisor in residential and mixed use developments.  He has been involved in some of the largest and most complex sites within the U.K.

The Residential Department at Colliers comprises a market leading  team of  surveyors and advisers who focus on London, The South East and the Regions, advising  clients on their options for maximising value for their assets, including planning, development consultancy, Build To Rent, investment and disposal strategy and New Homes & Project marketing, both in the UK and Internationally.

Andrew has worked in the sector since 1994  having started his career with a large multinational real estate agency, then running his own land agency for 8 years before joining Colliers in 2013. He has advised government bodies such as the NHS, as well as family businesses, funds, charities, developers and companies on their strategy for disposal of their land holdings and property assets.

Clients include, Legal & General, the NHS, Royal London Asset Management, The Diocese of London, London Square, Telereal Trilium, Threadneedle, Aberdeen Standard, Greggs, Rexel and PSA Group as well as other large corporate landowners.

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