Increasingly, it’s about da Benjamins

For all the high-fives and back-patting on display at the National Association of RV Parks and Campgrounds convention last week, an undercurrent of anxiety rippled just beneath the surface. Yes, the 2022 camping season was one of the best ever. Yes, there’s a wave of new campers invigorating the industry. And yes, a lot of the new-timers are more affluent than the fuddy-duddy boomers who dominated the landscape for so long. And yet. . . .

And yet, as strong as business was this year, for the most part it barely improved on 2021. As observed at an afternoon cracker barrel session led by Larry Brownfield, assistant vice president for franchise development at KOA, franchise revenues were up about 3% for the year even as camper nights were flat—in other words, any growth came from squeezing money out of a static customer base, not from increased business. Meanwhile, as summarized by economist Bob Kaplan in a breakout session on the economic outlook for 2023, industry headwinds are still gathering strength, including higher operating costs, higher fuel prices and inflationary pressures on family budgets.

Indeed, if there was one recurring theme to all the dollars-and-cents discussions, it was the observation that camping is becoming a pricey pastime. Propelled by a high savings rate during the many months of pandemic shut-downs, households were “flush with cash to spend on leisure activities,” Kaplan observed, to which the industry responded with opportunistic enthusiasm. As the number of camping households with annual incomes of more than $100,000 doubled from 2019 to 2021, the average cost of new RVs jumped 20% in three years, site rates kept going up, and the campground industry’s compound annual growth rate soared by half, to 12.7%, “an awesome number” that transformed the staid sector into a growth industry almost overnight.

But as seasoned investors are fond of saying, nothing grows to the sky. A strong dollar has made overseas tourism increasingly competitive with domestic travel—and as camping gets more expensive, hotels and other resorts also are competing for the same now shrinking pool of pent-up savings. Indeed, said Kaplan, demand for quality hotel rooms is already outstripping supply. Higher interest rates and rising fuel prices are deflating the RV sales balloon. And campground buyers are taking note and pulling back, as evidenced by a gradual rise in capitalization rates of newly sold properties, a marker of higher investment risk.

More cautious campground owners also are paying attention. Judy Brown, owner of a Florida RV park, said her campground now is almost completely occupied by full-timers, a hedge against softening transient demand and a transition enabled by the state’s flood of hurricane refugees. And Eric Rasmussen, president and director of acquisitions for Spacious Skies, an aggressively expanding chain of RV parks in the eastern U.S., said the company has started evaluating whether some of its properties should start accepting more long-term campers to ensure steadier cash flow.

While KOA and Spacious Skies both claim not to be changing their acquisition strategies—yet—Brownfield forecast that 2023 would be flat or even slightly down from this year. The “prudent” thing to do in an inflationary environment, he said, would be to reduce debt—the implication being that KOA’s pace of acquisitions may in fact start slowing down. Rasmussen, meanwhile, suggested that campground owners should “fire” their lower-end customers to make room for those who can absorb higher rates, another hint of growing financial stress.

Yet if the RV park industry indeed is heading into a significant slowdown, that may—somewhat paradoxically—result in a renewed acquisition spree. There’s more than $365 billion in cash sitting on the sidelines of the private real estate sector, Kaplan noted, just waiting for good opportunities, and real estate traditionally has been a safe haven in inflationary times.

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