Luxury Living: A New Investment Niche in UK Real Estate

Discover the resurgence of holiday let investments in the UK real estate market, presenting asset managers with lucrative opportunities in luxury living.

The COVID-19 pandemic has reshaped various sectors of the economy, but few have experienced as dramatic a transformation as the holiday home and leisure market. As lockdown restrictions eased in 2021, the UK witnessed a remarkable surge in domestic tourism, popularly termed the ‘staycation’ boom. This trend has not only persisted but has also evolved, making the holiday let property sector an increasingly attractive investment opportunity for asset managers. With rising rental incomes, strong demand, and technological advancements facilitating property management, the holiday let property market is poised for continued growth.

The Impact of the Staycation Boom

The staycation phenomenon has fundamentally altered the landscape of holiday accommodation in the UK. With international travel restrictions in place, millions of families opted to explore their own country, leading to a significant increase in occupancy rates and rental income for holiday lets. According to recent data, over six in ten Brits planned a staycation last year, marking a 50% increase compared to 2022 figures. This trend has not only benefited property owners but has also bolstered local economies in popular tourist destinations.

Rising Rental Income

One of the most compelling reasons for asset managers to consider investing in holiday lets is the rising rental income. The average income declared on holiday let properties surged by 14% during the 2020/21 tax year, surpassing that of long-term rentals for the first time, as reported by Hamptons. This upward trajectory has continued, with Sykes reporting that the average turnover for a holiday let property reached £24,500 in 2023. This increase in rental income is particularly appealing to property investors, especially in a climate where traditional landlord profits are being squeezed by tax changes, new lending rules, and rising interest rates.

Strong Demand

The demand for holiday letting remains robust, with record bookings anticipated for Easter 2024, reflecting an 11% annual increase and marking the busiest period ever for holiday let owners. Sykes reported an 8% year-on-year increase in bookings for 2023, translating to a staggering 71% rise compared to pre-pandemic levels. This sustained demand underscores the resilience of the holiday let property market and its potential for generating consistent returns for investors.

Technological Advancements

The rise of digital platforms such as Airbnb, Booking.com, and Expedia has revolutionized the holiday let sector. These platforms have simplified the process of advertising properties, managing bookings, and processing payments, making it easier for landlords to reach potential guests. According to the Office for National Statistics, nearly 2.8 million stays in short-term lets were booked through these platforms in the UK from July to September 2023. This technological evolution not only enhances the guest experience but also streamlines operations for property owners, further increasing the attractiveness of holiday let investment opportunities.

The Luxury Living Opportunity

The holiday park and campsite sector has also seen significant growth, generating £12.2 billion in visitor expenditure last year. This figure translates to £7.2 billion in Gross Value Added (GVA) and supports approximately 226,745 full-time equivalent jobs. The UK Caravan and Camping Alliance reported that this sector accounted for over 5% of the tourism sector’s GDP, with visitors spending an average of £217 per day on accommodation.

The pandemic has not only boosted the popularity of staycations but has also led to a demographic shift in the camping and caravanning market. Research from Mintel indicates that affluent families have increasingly gravitated towards camping, with nearly 37% of campers now having a household income exceeding £50,000, compared to just 21% pre-pandemic. This shift has created a significant demand for luxury camping experiences, with 39% of campers expressing a willingness to pay extra for upscale accommodations such as luxury caravans or lodges.

A Fragmented Market

The holiday let market is characterized by its fragmentation, presenting a ripe opportunity for consolidation. According to the latest analysis from Savills, this sector is attractive to private investors looking to buy, build, and reposition holiday parks. The potential for growth and the ability to cater to a diverse range of consumer preferences make this market an appealing choice for asset managers seeking higher returns.

The holiday home and leisure market has undergone a significant transformation in the wake of the COVID-19 pandemic, with the staycation trend showing no signs of abating. Rising rental incomes, strong demand, and technological advancements have created a fertile ground for investing in holiday lets. As asset managers seek to diversify their portfolios and capitalize on emerging trends, the holiday let sector stands out as a highly attractive option. With the potential for substantial returns and the ability to cater to a changing demographic, investing in holiday lets is not just a trend; it is a strategic move that aligns with the evolving landscape of travel and leisure in the UK.

The holiday let property market offers a unique opportunity for asset managers to tap into a growing sector that is reshaping the way people experience leisure and travel. As families continue to prioritize domestic holidays, the potential for lucrative returns in this holiday let investment market remains strong, making it an essential consideration for any forward-thinking investor.