Global Edition

Swinging fortunes

7.27am 13th March 2009 - Property

The golf course market has fared better than most in the past year, but action needs to be taken now to survive the challenges ahead, writes Charles Greville-Heygate of Strutt & Parker.

Golfers will no doubt remember 2008 for the loss of The Ryder Cup and the second wet summer in a row. The weather probably affected trading more than most other factors, and many operators have undershot their budgets.

The membership structure continued to change, too, with fewer golfers taking up traditional membership but more looking to play on a flexible basis. Despite this, many operators are still generating good levels of profit, and with falling oil and energy prices and low interest rates, margins could even increase.

Rent reviews in 2008 resulted in a wide range of results, from no increase to more than 50% (though this often reflects whether the previous rent was already at its maximum level or still catching up from a historically low level).

For those at market rents, increases roughly in line with RPI were considered reasonable. Most provincial rents range from £75,000 for a secondary location or club, to £150,000 for a well-located and profitable one.

The rental market was tested at The Bedford Golf Club, which was let on a 25-year FRI lease, and at Tapton Park Golf Club in Derbyshire, a municipal course owned by Chesterfield Borough Council and let to Sheffield International Ventures.

The settlement was at an annual rental plus a premium for investment, which makes an assessment of market rent unreliable. A good market rent was obtained for the re-letting of The Bedford Golf Club, which confirms the demand for well-located, profitable clubs.

Steady sales
After a number of years with sales of 14 to 15 courses a year, 2008 has still seen a steady market, but the number of completed sales has fallen to around 10. Unlike most commercial and residential property, golf course values have not shown significant drops over the past two years, partly because they have not experienced the high levels of increase that other property types have had, and partly due to the underlying asset value of agricultural land.

Properly-priced properties will sell, but the process may take longer because of the difficulty of obtaining funding. Hunley Hall (acquired by Strutt & Parker for clients with a guide price of £2.25m) and Bridlington Links both sold in administration last year, however.

An unusual feature of 2008 was the auction of Kent & Surrey Golf Course (formerly Edenbridge). Very few courses are sold by auction and in this case bidding just exceeded £lm. It failed to meet the reserve and has since been let.

Another course, sold three times since 2000, has seen its price fall by 17%. The change over the past two years has been just 6%, which is well within the normal valuation bracket and therefore makes any conclusion about a change in overall golf values unreliable.

Commercial property yields have increased over the past two years, and golf course investment yields have also increased by 2% or more, depending on the terms of the lease and the rent payable. Strutt & Parker advised the tenants of Aston Wood Golf Club in the West Midlands when the freehold investment was marketed.

A number of courses have closed, including Thoulstone Park near Warminster, being sold by Strutt & Parker; one of the two at Kent & Surrey; one at Wokingham; and, most recently; Kent National (formerly Moatlands), where the course was closed and the clubhouse sold off as a house. Will more owners be tempted to close courses if trading conditions become more difficult? We hope this won‘t be necessary, but it cannot be ruled out.

Looking ahead
All the signs are that 2009 will be a difficult year, but people will still play golf, hold meetings, get married, and need accommodation, exercise or relaxation. Consumers are likely to do this differently this year, and many golf clubs will need to adapt their operations to meet these challenges.

With good weather, good management and imaginative marketing, there are opportunities for some to increase profitability even if turnover falls. Action needs to be taken as early as possible, and some courses are already taking the necessary steps, including staff reductions.

We do not anticipate significant falls in golf course values unless there is a material increase in the number of courses coming on to the market. As the market is small, this could result in supply exceeding demand, putting downward pressure on prices.

We still have buyers keen to acquire the right property if it is priced fairly. With the falling pound, there will also be opportunities for overseas investors to purchase UK golf courses at 25-30% less due re the change in exchange rates.

Strutt & Parker

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