Eyes on the prize

With expansion opportunities becoming more limited in some sectors of the UK leisure industry, British operators are increasingly setting their sights on Europe as the next platform for growth.

In many European countries expenditure on leisure-related activities is increasing, and UK operators such as Heron International, Cannons and Wagamama are keen to be a part of this growing market.

Jumping on the euro train does, however, have its pitfalls, such as the differences in legislation, leases and the law. Operators also need to carefully target the market as some sectors are more buoyant than others.

Growth market
The health and fitness sector is proving to be one of the most attractive sectors to operators. Modern health and fitness clubs are a relatively new feature of the European leisure landscape, and British operators have been quick to recognise the substantial potential for growth.

"Europe is a logical growth market for this sector, which is in the embryonic stage on the continent," says Charles Maxlow Tomlinson of ATIS Real Weatheralls.

On the UK-side, expansion into Europe is being led by Fitness First, Holmes Place and Esporta, while numerous local chains such as Gymnase Club and Gymnasium in France, and Fin Form and Hard Work in Denmark are also growing. Cannons has announced that over the next five years it plans to increase its Dutch operations from two to 19 clubs, and it is considering expansion in Spain and Germany.

Chris Gotla, Cannons' development director, says: "We believe the market still has five to seven years' growth capacity."

Apart from health clubs, operators are looking at the multiplex sector, an area which is saturated in Britain. The European multiplex arena is a mature sector; planning restrictions and the lack of disposable income in areas like central and eastern Europe have hampered expansion - but there is still potential for growth.

As the European Leisure and Property Report compiled by Healey & Baker points out, "the multiplex market is expected to grow slowly".

Although some groups such as Village Roadshow, Ster Century, Cinemark and Hoyts are no longer pursuing aggressive European expansion plans, other operators including newcomer Spean Bridge Cinemas, remain optimistic. Spean Bridge plans to open around 20 sites throughout Europe over the next two years.

Cinema developments in European retail schemes are a common phenomenon. The Healey & Baker report indicates that most shopping centres incorporating leisure elements are the prevalent type of leisure scheme in Europe. It goes on to add that "new shopping centres will remain the main focus of leisure development across Europe for the next few years."

There are about 400 shopping centres throughout Europe that feature a multiplex cinema. Family entertainment centres (FECs) and bowling schemes are included in only a small number of these retail developments (about 50), but the number is growing.

Owners and developers are being attracted to FECs because they occupy relatively large spaces and have widespread appeal to all age groups. European FECs are dominated by local chains, but UK operator City Limits is one of the major international players looking to broaden their horizons.

"It is important to work out whether a concept fits in with a local culture," says Kelly Freeman of Davis Coffer Lyons. Knowledge of local behavioural patterns, consumer spending and market conditions is vital.

Health conscious Poles
For example, an analysis of the leisure sector in Poland indicates that the Poles are becoming increasingly health conscious and the proportion of consumer expenditure spent on leisure activities is increasing. With a population approaching 40m, the prospects for the leisure property market, particularly the health and fitness sector, seem very positive.

Local cultures and customs obviously also have a significant impact upon the market for restaurants, bars and cafés.

Some cities and regions readily embrace new and unusual brands and concepts. Wagamama has recently opened in Amsterdam and the pilot has been extremely successful.

The concept has proven unique. "There is nothing in Amsterdam quite like it",says Freeman. Regional traditions can also affect development plans so it is perhaps not surprising to find that although Pizza Express are expanding, none of the outlets are in Italy, the traditional home of pizza.

Pizza Express has opened 26 restaurants in 12 countries outside the UK and has chosen key markets such as Spain and France for organic expansion. It has elected to operate franchise arrangements in other countries.

Other operators, such as Scottish & Newcastle, are choosing to purchase existing leisure centres or to enter joint ventures.

Whether they choose to grow organically or by operating franchises or joint ventures, more and more operators are likely to take the leap across the Channel.

However, there are a number of issues to consider before taking this step. It seems clear that the pace of expansion into Europe is set to increase. With low European interest rates helping to reduce set-up costs, and lower taxes and wages minimising ongoing expenditure, Europe remains firmly on the agenda for leisure expansion plans.

Heron City
Turning a concept on its head...

Retail developments often incorporate leisure facilities into a shopping centre, however one British developer has turned this concept on its head by making shopping part of its leisure offering. UK developer Heron International has built three Heron City developments, such as that in Barcelona, totalling 150,000m² of leisure space. A new 50,000m² Heron City is due to open in Valencia this spring, and the company plans to build a further 10 Heron Cities in Europe over the next five years. Each Heron City combines a cinema, nightclub, health and fitness club, as well as a range of entertainment, food and beverage offers. Shopping is incorporated into the leisure offering, and the complexes regularly include retailers such as Top Shop, Games Workshop and Cort Ingles, which are aimed at impulse purchasers.This type of development, which aims to attract local people, is likely to increase in popularity in Europe.

Laws and legislation

The laws governing VAT can vary from European country to country. For example, health and fitness tenants are VAT exempt in Sweden, so landlords need to take this into account when negotiating rents.

Leases are also unlikely to resemble their UK counterparts. Rent reviews, renewal rights, break clauses and length are often quite different. Local planning regulations, licensing laws and other relevant legislation require careful scrutiny.

A good understanding of the local language will help when conducting this type of research. An inability to converse fluently with local organisations can be a serious barrier to progress. Taxation rules vary across Europe, and it is important to be aware of the relevant levels of personal tax, corporate tax and stamp duty on transfers of property ownership.

Nigel Webb of DTZ Debenham Tie Leung suggests that "without a clued-up accountant, companies will struggle to avoid, for example, the 12.5% stamp duty in Belgium."

As rules and regulations differ in each country, it is vital to have a good grasp of the nuances and intricacies found in those individual markets. Local advice is essential.

Licensed and Leisure Property Supplement, Spring 2002

A joint supplement by Estates Gazette and Caterer & Hotelkeeper magazine