Farm Diversification

There is an increasing demand for high quality, value for money, self-catering holidays of either 3 or 7 nights. Increasingly, visitors now decide on what activity/interest/experience they would like to pursue and then look for appropriate accommodation, rather than choosing a location first.

It can be expected that there will continue to be an increase in the number of older visitors who will, in general, be healthier and have more money to spend. Tourism organisations also expect an increased interest in holidays that promote good health and well-being. Generally, the market for such accommodation is relatively strong despite over-provision in some areas. It is important to fully research the market in the local area as part of the business plan. According to VisitScotland, almost 16 million tourists took overnight trips to Scotland spending nearly £4.2 billion, supporting about 9% of all employment. VisitScotland survey results indicate that chalets had an average occupancy rate of 53% in 2009. There was some regional variation in these rates.

To gain a competitive advantage it is useful to be able to provide a marketing package that includes high quality accommodation plus, for example, fishing, golf, shooting or other sport, nature interest, or some other activity. The main competition is from other farmers and organisations specialising in purpose-built accommodation (e.g. Forestry Commission and other private entrepreneurs).

Visitor and tourism trends for each of the VisitScotland regions can be viewed on the VisitScotland's Research and Statistics website. Here you can find reports detailing the local tourism market with statistics about visitor numbers, trends, etc. You can also find out about Scottish occupancy rates for self-catering accommodation (and other types of accommodation) on the Visit Scotland website.

The top end of the holiday market is still increasing, with demand for high quality self-catering accommodation. Property is currently available from the Forestry Commission, chalet developments, chalet style time-share developments and some smaller private developments. The opportunity for newcomers to provide chalet accommodation depends very much on the location and in an increasing number of situations on the `extra' facilities that can be provided. These ‘extra' facilities may include informal or formal recreational activities.

• Land: Size of land is not a limiting factor depending on numbers, but the siting of the chalets is important. Rustic settings, sheltered and naturally landscaped locations would be preferable. Proximity to services such as water and electricity will influence development costs.
• Labour: Labour will berequired for cleaning, repairs, etc. The labour requirement will increase during the busier, summer period
• Water, Woodlands, etc: Additional facilities such as water or woodland adds to the attraction of a chalet site and may help to increase occupancy rates.

Visit Scotland run numerous quality assurance grading schemes and details on the costs of any accreditation can be found on the VisitScotland website.

Further information on marketing initiatives in Scotland such as walking and cycling tourism and accreditation to some of Visit Scotland’s Welcome Schemes (covering Ancestral Tourism, Anglers, Bikers, Children, Classic Cars, Fieldsports, Golfers, Groups, Visiting Golfers, Walkers and Cyclists may increase interest in your accommodation.

Initial costs are high and vary from £30,000 per chalet upwards, depending on the size of the accommodation.

Current prices listed by Finestam Lo Cabins include: £15,495 for basic 43 sq. m log cabin kit to £30,295 for a 59.7 sq.m basic log cabin kit.

In addition to the basic kit price, there are erection costs, site services, fitting out and professional fees which could total another £12,000 per chalet, depending on the site and distance from services. Finestam Lo Cabins estimate that the average additional costs for a 2 bedroom house that they would charge are (note that these prices can be significantly reduced if work is carried out yourself):

• Foundations £6000-7000
• Roof tiling £5000-6000
• Plumbing and bathrooms £3600-5000
• Wiring £3000-5000
• Kitchen £3500-5000
• Timber treatment £1500-2500
• Insulation £1500-2500
• Rainwater goods £500-750.

Running costs will vary depending on the size and type of chalet, length of letting season and other factors.  The following annual costs should be budgeted for:

• Electricity/heating: Variable, depending on season, weather, insulation levels
• Repairs/replacement: Allow  5-10% of capital costs of equipment
• Cleaning:  £20-30 per week per chalet (assuming weekly rental; may be more if weekend/midweek rentals)
• Rates: Holiday accommodation is assessable for ratable value if it is available for letting for 140 days or more per financial year.  Ratable value is based on a number of factors including the number of single bed spaces in the property.  Approximate ratable values are £150-£200 per bed space. 
• Advertising Agency costs could be £150 upwards, depending on the level of service.  A website is essential and may cost around £500 for initial development with subsequent annual maintenance costs of £150 upwards.  IT skills training may also be required in order to manage the website.
• Insurance: Adequate public liability insurance will be required.
• Grounds maintenance: variable, depending on area and amount of work required.
• Capital and interest repayment, together with depreciation also need to be taken into account

Returns for a typical season of about 26 weeks will depend on size of chalet, location and available facilities.  These may range from around £200 per week in low season to £600 upwards per week in high season for a two bedroom chalet.

Planning Permission: Planning permission is necessary and in some areas environmental impact assessment may be required.

Capital Costs: Initial costs are high, business is unlikely to be viable if a large proportion of the capital is borrowed. Costs of services and sewage disposal can be prohibitive, depending on location.

Fire Safety: Please see the Scottish Government's Practical Fire Safety Guidance for small Bed and Breakfast and Self-Catering Premises for guidance for B&B's operating with no more than 8 guests or self catering accomodation that accommodates no more than 10 guests.  For larger premises please see the Practical Fire Safety Guidance for Medium and Large Premises Providing Sleeping Accommodation or see the FireLaw website

Training in a wide range of subjects relevant to the provision of self-catering accommodation is available through VisitScotland the Scottish Enterprise network, Business Gateways and local tourist forums. 

Through the Scottish Rural Development Programme (SRDP) 2007-2013 funding is now available for rural businesses throughout Scotland for diversification and renewable energy projects. Specifically, support is delivered through Rural Development Contracts – Rural Priorities which was launched in April 2008. For further information about what support is available see the Section on Rural Development Contracts – Rural Priorities.