Statistics and Surveys

by Simon Lord

last updated 26/01/2021

Report finds demand for businesses outstrips supply

by Simon Lord

last updated 26/01/2021

January 2021 – A new report from ABC Business Sales suggests that the current business sales market is experiencing a significant gap between supply and demand, leading to increased prices. This could make greenfield franchise opportunities more attractive.

The new report, from leading business brokers ABC Business Sales, analyses the volumes of business transactions completed, average business prices, demand data and supply trends including the number of new businesses coming to market. It also explores the material difference in annual yields when comparing property investments to business acquisitions.

‘This is the first time in New Zealand history an average business sales price has been disclosed and publicised,’ says the company. ‘On a weekly basis, we hear reports on the average house price, but we have never educated the market on the average business price and whether it is going up, down or sideways.’

According to the report, three key demand factors have created high levels of demand since the lockdowns of 2020. These are:

  • Returning expats
  • Newly unemployed looking to business ownership to replicate lost income
  • Low interest rate environment

At the same time, ABC has experienced a drop in new business listings. The result has been an average price increase of 4 percent for non-hospitality SME businesses. Hospitality business prices also increased by 2 percent, despite the impact of the lockdowns last year.

With property prices soaring, the report also looks at the yields available from business ownership as opposed to residential ownership. It finds business ownership returns are six times higher than those from residential property and, while acknowledging the higher risk of business ownership, says, ‘We don’t believe the risk premium for investing in a business is anywhere close to six times higher than residential property.’

The growth in demand, and the increase in prices for existing businesses, might be expected to have a knock-on effect for greenfield franchise opportunities which offer proven branding, systems and support and the opportunity for greater capital gain while not attracting the premium for existing cashflow.

Read the full ABC Business Sales report here.

Read Why buy a new franchise here. 

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