Investing in Caravan Parks
Australia’s growing population and growth in grey nomads has seen continued demand for caravan park accomodation. In this guide we dive into the fundumentals of investing in caravan parks.
In recent times we have seen the emergence and growth of the manufactured housing sector (MHE) in Australia.
Most of this growth has focused on the growth of MHE as a viable retirement living alternative to the Deferred Management Fee model, and there are now numerous listed players in this space. In many instances, this has been brought about by the conversion of existing caravan parks with tourism into retirement living. As a result, we are now starting to see a net increase in the number of retirement MHE parks and a decrease in tourism parks, which continues the longer term trend in Australia (see below).
These supply tends, strong underlying tourism demand, attractive yields, and, lower competition for assets, point favourably to tourism parks as an attractive investment.
Underlying Demand for Tourism Parks
Historically, tourism park occupancy has been more stable than other forms of accommodation, and hardly missed a beat during the Credit Crisis. This resilience in occupancy for caravan parks reflects its low cost offering, unique experience, and ease for domestic families.
Recent falls in the Australian dollar ($AUD) are causing a renaissance for domestic travel again.
The growth in Grey Nomads, who represent the second largest users of caravan park accommodation, will continue to support tourism park occupancy. The growth in Recreational Vehicle (RV) Registrations best supports these trends.
In addition to these demand trends, in recent years there has been a considerable increase in the quality of accommodation and facilities provided by tourist park operators. One of the key changes has been caravan sites making way for self-contained cabins. These changes are having a positive impact on park profitability, with the National Visitors Survey by Tourism Research Australia revealing that camping and caravanning grew by 7% in 2014, making it the fastest growing accommodation type.
Find out more: Cararvan Industry Association of Australia.
Tourism Park DNA
Industry sources say good tourism park operators can achieve consistent 6-8% p.a. top line revenue growth from proper marketing, offering good park facilities, and getting the mix right between cabins and camping.
Occupancy levels for tourism parks generally have average yearly occupancy of 40-50%, and are seasonal, with full occupancy around Christmas and Easter. While tourism park revenue can be impacted by factors such as weather and currency movements, these impacts tend to be far less of an impact than other types of tourism accommodation. According to industry sources, EBIT margins generally range between 50-60% for Tourism Parks.
The following example highlights the differences in financials between tourism parks and pure MHE parks. Ultimately, pure MHE parks are more bond-like, while tourism parks offer more levers, considering the potential to changes weekly rates, occupancy, and site mix.
Market yields for mixed-use and tourism parks have compressed 50-100bp over the past two years with yields now typically being ~8.0%.
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For more information on commercial property in general, read our article Investing in Commercial Property – The Ultimate Guide.