Situated on a quiet bend in the Sure river, Camping du Moulin near Bourscheid, Luxembourg, is a 140-pitch campsite dedicated to nature. Its spacious 10-square-metre pitches run both sides of the Sure’s gentle eddies, while those who crave a little more luxury can bed down in safari-style tents with camp beds and fridges.

The campsite is one of 79 in Luxembourg, collectively capable of welcoming almost 42,000 people, and, for investors, the proposition isn’t hard to spot.

“A campsite is both a real estate asset and a business. It creates a use out of land that might otherwise be unsuitable for construction or agriculture and it is highly cash generative,” said Luis de Palacio, owner of Camping du Moulin.

Investors would appear to agree. “The camping business, as one of many offers on the tourism lodging market, has seen a sustained growth (with some boom waves) over the past 20-25 years,” said Paul Visser, owner of Luxembourg-based tourism consultancy Go-Get Consulting.

Private equity investment in campsites and holiday parks is particularly common with European holiday park posterchild Center Parcs private equity-owned since 2006. Recently, French infrastructure fund, Infravia, in 2021 acquired 50% of the Sandaya group of European campsites for €400m and the real estate arm of asset manager Swiss Life Asset Managers has a Club Plein Air Tourisme fund which aims for a target of €300 million euros over the next three years with an average debt of 35%.

And in the past few years this has accelerated.

“I see a significant number of enquiries over the last 12-18 months for our products to launch investment vehicles for alternative real estate projects [such as campsites],” said Peter Wilson, managing director at ScalingFunds, a technology provider to the alternative fund industry that uses distributed ledger technology to streamline operational processes in alternative investment funds.

“These enquiries are being driven by the demand and enthusiasm in this area from LPs and investors,” he added.

“Right now you see a lot of fund-backed camping purchases on the international level through groups and chains,” said Visser.  “Amongst [these groups] there is also a growing consolidation happening, i.e., ever bigger players are merging or are being bought up by ever more ‘faceless’ investment companies from wherever.”

So what has driven this, and what role can campsites play in an investment portfolio?

Yield and de-correlation

Financial markets have been in various degrees of turmoil since the covid-19 crisis and subsequent Ukraine war. Add to this the monumental risk of a Chinese property crash, it’s no surprise that investors are on the hunt for new places to store their money.

“Leisure property returns are uncorrelated from all mainstream assets, including real estate,” said Anthony Esse, chief executive of UK investment manager Darwin Alternatives. “Holiday parks have proved relatively resilient to the economic turmoil of the past few years, and they tend to provide stable, consistent, returns of 6-8% per annum.”

This combination is increasingly proving attractive to institutional investors.

“Property investors historically had difficulty getting their heads around leisure property. They thought in terms of rents, voids and covenants,” said Esse. “But once at cruising altitude, these businesses generate secure and long-term cashflows year round.”

Darwin focuses on developing products for pension funds. Its Leisure Property Fund invests in a diversified portfolio of UK holiday parks, while the Leisure Development Fund has a focus for capital growth, acquiring parks with the potential for redevelopment.

“There’s a trend towards a greater quality of offering,” said Esse, citing ‘glamping’ (glamorous camping). “Hot tubs, log fires, a growing appetite for being close to nature.”

Redevelopment is important, agreed de Palacio. “Years ago, what you would see is campsites with long-term residents. These kinds of campsites offered no real experience for the tourists, particularly if their pitch was stuck between two old and empty caravans. To a certain extent some of these sites remain in Belgium, the Netherlands and Luxembourg, but many of them have been taken over and redeveloped.”

As with Esse, de Palacio sees the trend towards ‘glamping’ as an opportunity for creating financial upside. Campsites in Luxembourg offer accommodation as varied as two-bed chalets and six-bed safari tents with private bathrooms as well as simple grass pitches--a diversity that simply was not available 10-15 years ago, according to de Palacio.

There is also huge scope for building camping around different themes, pointed out de Palacio. “It can be activity-based with a big programme for kids, nudist--that’s a very loyal customer base--dog-friendly, even spiritual.”

According to de Palacio, banks respond well to the camping proposition, understanding the business model and offering a mortgage on the land. With one caveat, however. “In Luxembourg, it’s not worth buying land and attempting to turn it into a campsite as the licensing laws and other administrative tasks take too long. It is far more common to buy an existing campsite and improve it.”

So where does it go from here?

Stability and safety

“Camping as a business seems to be relatively stable in terms of generating reliable turnovers and income, since camping business has gone relatively unscathed through the multiple crisis that we’ve faced in Europe in the past 20 years,” said Visser.

“Even in hard times, people would tend to adapt their budget and switch to holidays closer to home.”

And more recently, covid has played its part in changing how people vacation. “Covid has accelerated a trend to more independent and ‘safe’ forms of travelling, where people could keep their distance, be outdoors and travel independently,” said Visser.

“People now tend to avoid mass tourism hot spots far away from home, and tend to stay closer to home. Add that car travels and camping can generally be considered less damaging to ecosystems and the global warming than flying or boat cruises, so in that respect it comes along as a welcome alternative, and there’s plenty to choose from,” he added.

Sustainability credentials are important for investors. According to Esse, the redevelopment opportunities in campgrounds allow for sustainable models to be built. “Environmental considerations are at the forefront of our ongoing park operations and all of our redevelopment work.  We aim to ensure that our buildings and accommodation are as energy efficient as possible, our park environments are managed in harmony with the local environment and that waste management is efficient and utilises recycling where possible.”

Esse says that the traditional model of staying one week in a holiday park as a captive customer has evolved into ‘holiday snacking’ as he puts it, short breaks of four or so nights, often with a group of friends or family.

“There has been huge quality improvements and diversification on (some) campsites regarding comfort, leisure infrastructure, rental accommodations and other services (e.g. the glamping trend), there has been a rising professionalism and digitalization in booking and other processes,” said Visser.

“So as long as campsites keep innovating, investing into new products and adapting to changing demands, I’m sure that their economic success can well be extended in the future.”

This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg. .