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MARKET VERDICT: Demand for restaurant assets is outstripping supply as market sentiment improves

Restaurant

Property agency Christie & Co has published its mid-year review on the restaurant sector, which looks at the activity, trends and challenges in the first half of 2021. Here is its verdict on how the market is shaping up…

Like all hospitality businesses, the last six months was a very tough period for restaurants across the UK, particularly as the sector was already struggling prior to the onset of the pandemic in 2020.

The value of the eating out market declined by £10 billion last year, as continual lockdowns placed huge restrictions on trading and many restaurants were forced to close for good.

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This drop in value was expected to reverse in 2021 but recovery was severely disrupted by the third national lockdown at the beginning of the year, and it is now likely to be the end of 2022 before the sector experiences a full revival. During this time, we expect to see more operators entering into CVAs or administration.

Once lockdown restrictions were lifted to allow outdoor trading on 12 April, restaurants with limited outdoor seating space found themselves at a disadvantage, and trading continued to suffer until they were allowed to reopen indoors.

Operators were also caught off guard by the shortage of staff returning to the workforce since reopening, largely due to Brexit but also as many furloughed workers have left their jobs for alternative work.

Generally, consumer support for independent, community-focussed operations remained strong and is expected to continue, so investor interest persisted for restaurant assets outside of city-centres, in particular regional tourist hotspots which capture trade from staycations.

City venues are still experiencing declines in footfall due to many people staying closer to home for work, study and other leisure activities.

There has been a continued move to more simplified menus to mitigate these costly impacts of the pandemic. Technology has also played a huge role in helping businesses adapt with more cost-effective service models or to tap into the food delivery market, which continues to thrive.

The explosion in the take away and delivery sector since 2020 has led Christie & Co to some exciting work in the world of franchising.

During Q1 this year, the team secured Starboard Hotels as the new franchisee partner for 27 Pizza Hut Delivery stores across the Midlands and North West, operated by YUM!. a Fortune 1000 company which owns a multitude of international fast-food outlets including Pizza Hut.

This highlights the fundamental attractiveness of the franchise sector, particularly to operators looking to diversify.

This exciting result has led to further work with YUM!. During September, the team kicked off a second project, which has tasked them with identifying ambitious entrepreneurs who wish to become a part of the household Pizza Hut brand, by converting existing owner-operated sites to a franchise store.

The company is initially seeking 125 new sites to expand its delivery and takeaway offerings throughout the UK.

It is looking for either new partners who will are willing to convert their store and take on the Pizza Hut brand, the product and its customers, or to work with experienced and proven operators who are committed to company growth and who are willing to invest over the short, medium, and long term in all aspects of the business.

Looking ahead in 2021 for pubs and restaurants

The number of businesses reporting a strong return to trading since reopening in April 2021 has demonstrated the significance that British people place on visiting pubs and restaurants.

As such, we can be relatively positive that the bounce-back over summer will be strong, boosted by the ongoing vaccination programme and the domestic staycation market.

This is supported by the results of our recent Sentiment Survey, which surveyed hospitality operators to gain an outlook for the sector and business operations for the rest of the year.

The results indicate a sense of cautious optimism has begun to filter through the market since our last survey in January 2021.

67% of respondents said they feel positive about seeing some recovery in the second half of 2021, following ‘Freedom Day’ on 19 July going ahead as planned and seeing all coronavirus restrictions lifted to allow viable operation.

49% also feel there is potential opportunity in the second half of 2021.

The key opportunities highlighted are:

– People receiving their vaccinations and being more comfortable going out

– Easing of restrictions

– Opportunities to expand (distressed / vacant)

– Staycations

Encouragingly, 83% feel it will take less than three years for the sector to return to pre-Covid levels.

Buyer demand for hospitality assets will continue to outstrip supply in the second half of 2021, which is positive for sellers and may lead to more competitive bidding and dynamic pricing. The challenge will be bringing sufficient levels of assets to the market.

Sentiment around pricing has improved significantly since January 2021.

68% of people think pricing will stay the same or increase, likely off the back of the strong return to trading since reopening. Following a further boost over summer, this may encourage more operators to test the market.

Respondents also identified a number of challenges which could threaten the sector’s rate of recovery over the next six months. Key headwinds include the staffing crisis facing the industry, rising costs and price inflation, which may deter consumers from spending on eating and drinking out.

 

MARKET VERDICT: Why investors are still clamouring for a piece of the pub market

Tags : Christie + CoresearchRestaurants
Andrew Seymour

The author Andrew Seymour

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