Business Outlook 2009 Market Intelligence 2008 AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY
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AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY www.christiecorporate.com Business Outlook 2009 Market Intelligence 2008 AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY CHRISTIE + CO PRICE INDICES Index based on average sale prices (from a base of 100 in 1975) 1975 2003 2004 2005 2006 2007 2008 Hotels 100 695 771 854 966 1025 837 Public Houses 100 753 822 865 939 1000 884 Restaurants 100 837 865 906 950 1026 873 Care 100 579 677 775 910 1021 849 Retail 100 828 865 933 988 1043 975 Christie + Co Average Index 100 792 863 937 1021 1099 981 Retail Price Index 100 469 484 497 516 538 554 House Price Index 100 1227 1411 1458 1598 1708 1471 PERCENTAGE MOVEMENT IN AVERAGE PRICES Hotels Public Houses Restaurants -18.36% movement in average prices -11.63% movement in average prices -14.92% movement in average prices 15% 13.1% 11.6% 10.9% 10.8% 10% 10% 10% 9.2% 8.5% 6.1% 8.0% 6.2% 6.5% 5% 5% 5.2% 5% 4.7% 4.9% 3.3% 2.6% 0% 0% 0% 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 -5% -5% -5% -10% -10% -11.63% -10% -14.92% -15% -15% -18.36% -20% www.christiecorporate.com 1800 Hotels 1700 Public Houses Restaurants 1600 Care 1500 Retail Christie + Co Index 1400 Retail Price Index 1300 House Price Index 1200 1100 1000 900 800 700 600 500 400 300 200 1991 2001 1987 1997 1992 1985 1993 1984 1995 1988 1994 1990 1986 2007 1989 1998 1996 2002 1999 2003 2005 2004 2000 2008 2006 CONTENTS Care Retail Chairman’s Overview . 02 -16.89% movement in average prices -6.48% movement in average prices Introduction . 04 Hotels . 06 20% 20% Public Houses + Restaurants . 10 18.9% 18.5% Leisure . 14 16.9% 17.4% 15% 15% Care . 18 14.5% Retail . 22 12.2% Christie Group . 26 10% 10% France. 28 7.9% Germany . 29 5% 5% 5.9% 5.6% Scandinavia, Russia 4.5% and the Baltic States . 30 0% 0% Spain . 31 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 Locations + Contacts . 32 -5% -5% -6.48% -10% -10% -15% -16.89% -20% 1 AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY Chairman’s overview Over the last decade, we reported strong and positive growth in average property values, across almost all our specialist sectors — a period in which debt was freely available and property-based businesses were in high demand. Having enjoyed a long bull run, we entered 2008 with the knowledge that the environment would be much more challenging. The initial effects of the credit crunch were felt in the latter part of 2007, but the impact on business property values became truly evident during 2008, CHAIRMAN’S OVERVIEW as a combined lack of cash and confidence slowed transactional activity. An active start Difficult predictions In last year’s Business Outlook document, The Bank of England’s Monetary Policy A seller may be looking to retire and is I predicted a return to sound financial Committee made a series of cuts, which unsure of where it’s safe to reinvest, or a principles, where buyers of businesses would brought the Bank Rate down from 5.5%, younger vendor may be planning to return be expected to put in a real cash investment, at the beginning of 2008, to an historic to paid employment — difficult at a time of rather than securing funds against the uplift low of 2.0% as the year closed. These large scale redundancies. in value of existing assets held. rate cuts would traditionally be reflected in the lending markets, but the future cost Whilst transactional activity has slowed, During the first few months of the year, of money is unfortunately more difficult to Christie + Co’s advisory activity is in these predictions were realised as the market predict, given the unprecedented decoupling demand, in line with the industry’s need returned to financial normality and showed of the Base Rate and Libor. for valuations and specialist professional every indication of continuing in that vein. advice. The dedicated Bank Support & The transactional markets in all our sectors Business values eventually adjust to the Business Recovery Unit we set up in the were busy, as business owners rushed to medium-term cost of money; however, early 1990s was quickly re-established in take advantage of the 10% CGT rate, either it is the availability of money that the second half of 2008 and we are by selling, or at least crystallising gains. determines transaction volumes. We are assisting with an increasing number of optimistic that finance for the purchase of distressed business and insolvency Deepening of the crisis small to medium-sized businesses will be situations to achieve the most positive At the beginning of April, the International readily available in 2009, providing operators outcome possible in each circumstance. Monetary Fund warned that the effects of have a sound business track record and are the credit crunch were broadening into the able to inject at least 30% equity. Sound Looking to the future residential and commercial mortgage markets commercial businesses will be the most Although transactional activity in our and also into the corporate credit markets. readily fundable. markets has slowed, it certainly hasn’t reached a standstill. Vendors continue to In May, the markets paused. The collapse of Movement in average values be motivated to sell for a variety of reasons the housing market depleted the market of Christie + Co’s average price indices, which — retirement, death, changes in personal first time buyers, with the knock-on effect are based on analysis of our own transactions circumstances, or financial need — and transferring to the small business ladder. for the year as a whole, show a reduction in buyer enthusiasm, both yield driven and average business property values across all opportunistic, still exists. Although many Syndication slowed to a trickle and with it our sectors. Values within the hotel sector first time buyers have been deterred by the corporate portfolio sales market — reduced by 18.36%, whilst in the pub and the economic uncertainty, our transactional stalling a number of deals that were restaurant sectors, they reduced by 11.63% activity confirms that there are still some forecast to take place within our sectors. and 14.92% respectively. The care sector new entrants to our markets, seeking to The government’s £37 billion rescue plan, reported a negative value movement of control their own investments and careers, in October, was “designed to put the British 16.89%, whilst the retail sector fared a little as well as the experienced operators who banking system on a sounder footing”. better, recording a reduction of just 6.48% possess sufficient confidence and knowledge However, the part nationalisation of the in average values. to expand. participating banks brought mixed messages, which ranged from “banks should continue to Encouraging signs The challenge for Christie + Co in 2009 will be lend at 2007 volumes” to “banks will consider Interestingly, we are still seeing a consistent matching vendor expectations with those of risks and make their own lending decisions”. volume of buyers registering on our website funded buyers, and concluding deals. We saw and viewing businesses. The number of signs, late in 2008, that vendors had become businesses for sale seems stable and constant. more realistic in their price expectations, thus It is the lack of cash, and with it a lack providing real value opportunities for cash of certainty, that has slowed the market rich buyers in 2009. confidence of both buyer and seller. 2 www.christiecorporate.com CHAIRMAN’S STATEMENT We predict an increase in overseas investors taking advantage of sterling assets and record low exchange rates. Hospitality businesses in particular should benefit from a rise in tourist numbers. Today, you can buy a leasehold business for between once and twice its net profit, or a freehold business yielding twice the related interest cost. These are exceptionally attractive yields. For those with access to capital, why wait? David Rugg, Chairman 3 AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY Putting our Intelligence to the test Christie + Co is undoubtedly best known as a specialist business brokerage, but the challenging market conditions of 2008 presented us with an opportunity to prove our capabilities as professional property consultants, who can provide valuable advice at a time when it is most needed. BUSINESS INTELLIGENCE Rising to the challenges Looking forward to 2009 Although we have enjoyed operating in The importance of understanding the Most businesses enter 2009 with concerns thriving business property markets for the underlying fundamentals of value has about future trading and the impact current past 10 years, we are equally accustomed never been greater. In today’s less economic difficulties will have on their to much more challenging conditions. transparent market, we are unable to performance. At whatever level a business is Christie + Co was established in 1935 and rely solely on transactional evidence. trading — whether it is budget or discounter, we have experienced a number of difficult Fortunately our specialist sector knowledge private provision or luxury — we believe economic periods in the past, where and business intelligence enables us to that service delivery and customer care will property values have fallen and businesses recognise the many factors that contribute ensure that the business stands the best have benefited from our specialist advice. to business value and take a realistic view. chance of success. Unfortunately there will be “distressed” opportunities, as the market Our market knowledge and strong Providing timely advice readjusts to a more normalised financing relationships enabled us to continue In a challenging marketplace, timely advice climate and values reflect the more cautious identifying opportunities and brokering is vital.