Sector update: Holiday and caravan parks

As 2021 comes to a close, it’s natural to reflect. The last couple of years have been extraordinary, but the holiday park industry has been changing for some time, with its appeal now wider than ever. Bucket and spade holiday? Of course. Long weekend in a remote setting with the family? Options are plentiful. A weekend hot tub break with your partner? Increasingly so.

The rise in interest is in part down to growing consumer appetite for domestic holidays, but mainly due to the ever-growing investment in the quality of the proposition we’ve all seen over the last few years. COVID-19 has accelerated and instigated more change. The park proposition has premiumised and caters for a broader range of customers than ever before.

2020-21

The period coming out of the global financial crisis was the start of this as more and more private equity money came into the industry. But a handful of ‘once in a lifetime’ events from the last couple of years have added fuel to the fire. First, Brexit created an odd and prolonged period of consumer uncertainty (while also making visiting or buying a home overseas more difficult), then, of course, came COVID-19. Both caused disruption but ultimately led to significant pent up customer demand, while also introducing the proposition to a new customer group. The latter is particularly important. Holiday parks have been increasingly popular for some time, but the impact of the last couple of years has been a step-change for the industry.

It’s difficult to put boxes around things, but this new customer group is typically characterised as a bit younger and a bit wealthier than the typical homeowner or holidaymaker. And it’s had a massive impact on the market. For example, in 2020 CIL estimated that at least two million more households were interested in buying a holiday home than in normal years.

In a supply-constrained market, this has had a profound effect. Such excess consumer demand has led to:

• Higher than anticipated sales volumes and the opportunity to charge higher prices and achieve better average unit margins.
• Close to 100% occupancy during peak summer periods, with shoulder periods also experiencing higher rates than normal, and the ability to charge significantly higher rates than long-run averages.

Matching this demand with a sufficient supply of units has been difficult. PX rates are down as owners sat on their hands during the last few years (although this will bounce back as life returns to normal) and the improved quality of units means owners are generally holding on to them for longer. So, standing stock is being run down, fleet units are being repurposed and, most importantly, manufacturers are experiencing significantly high demand for new units. With the problems of 2020-21 easing, we expect a bumper few years for that part of the industry.

All of this has contributed to an atypical period from both a sales and holiday perspective for holiday park operators. Some have responded proactively, creating retail capacity by churning through younger fleet than they might normally do, encouraging upgrades through better financing deals or simply committing to new orders further in advance than would be ideal. Holiday propositions have also developed, with operators considering or introducing flexible arrivals and departures and investing in the holidaymaker experience to ensure it matches that experienced in other parts of the hospitality industry (you can now find smashed avocado on toast at some parks…). There is no perfect solution, but it’s clear the industry is doing something right. The market has grown at ~3% per annum for some time, but current estimates suggest it could be >7% per annum during the 2020-21 period and growing at 5-6% for the next couple of years.

2022 and beyond

So, what of the next few years? It would be prudent to assume that as the impact of COVID-19 on international travel wanes, so too will the percentage of the new demographic interested in buying a CHH. However, COVID-19 has likely resulted in a small shift towards a higher propensity for staycations. This suggests that a small proportion of the new demographic will remain in the market for the coming years. This coupled with the positive long-term underlying market dynamics (e.g. ongoing growth in staycation demand, wider park investment driving interest, capital availability, second home ownership returning to the UK) supports long-term market growth.

We expect 2022 to be a particularly positive year as parks open for their first full Easter since 2019 and some overseas travel restrictions are likely to remain in place, dampening demand for foreign holidays (albeit this will be much higher than 2020 and 2021). Cost is also a key factor – CIL recently profiled a typical holiday for a family of four in the UK and popular Western European destinations in 2022. The difference is stark, with some having to pay up to twice as much. There has always been a difference, but reduced airline routes and the cost of additional testing have increased the gap.

In terms of the specifics, CIL expect:

• Sales: Prices to remain higher than long-term averages, but average unit margins to come down a little as manufacturers increase their prices following high demand and the likelihood of continued inflation in the near term. Sales volumes will continue to grow into 2022, before slowing to more normal rates of growth thereafter.
• Holidays: Some retention in higher pricing, but likely falling off the 2021 highs as we reach 2023. Occupancy should remain high overall, with the shoulder periods higher than long-term averages as interest in the proposition grows.

In general, it’s a positive outlook. However, it is probably worth noting that this does not take into account the potential for a prolonged period of economic slowdown. This is not out of the realm of possibilities, although of course, the market is well-positioned to weather this should it happen. Staycation demand spikes even further during such periods, with operators that are best positioned to flex towards holidaymakers typically faring best as retail demand falls, particularly for newer units.

Final thoughts

So as the market readies itself for 2022, we expect the industry to continue to flourish. Hopefully, the external shocks are done for now, but either way, the last couple of years have readied operators to face any potential challenge and positioned the industry to continue its impressive recent growth.