When the COVID-19 pandemic hit the UK, leisure and hospitality was the first sector to be subjected to operating restrictions, with pubs, restaurants, gyms and cinemas forced to close on 20th March.
Operators have responded swiftly, adopting the measures made available by the government to conserve cash and batten down the hatches until the pandemic has passed.
Since the enforced closure of leisure businesses across the country, Colliers’ Licensed & Leisure team has been working with clients across the sector, offering guidance to deal with the impact of COVID-19 and, even at this early stage, helping them to think about how their businesses will look as we emerge from the current restrictions.
Many pub tenants will benefit from the rent holidays or deferrals that most pub companies have offered, and the majority of operators of large leased managed houses took a decision not to pay rent to their landlords on the March quarter day. This may relieve short-term pressures on cashflow, but if the rents are deferred rather than written off altogether, this will undoubtedly increase operator costs for the sector in the future.
The 12-month rates holiday, and the introduction of the furlough scheme to reduce payroll costs, have also been very welcome, and the availability of funding from the CBILS and direct cash grants will be a further important part of the effort to keep pubs businesses solvent and ready to reopen for trade. Hospitality businesses, particularly those at the smaller end of the scale, do not generally hold large cash reserves, so it is imperative that these sources of funding start flowing quickly.
Whilst restaurants have also benefitted from the rates holiday and the furlough scheme, they generally have a less symbiotic relationship with their landlords than that which pubs enjoy. This, coupled with the pressure which the restaurant sector was already under from changes in customer behaviour and the over expansion of the middle market casual dining sector, is one of the factors behind the administrations of Carluccio’s, Chiquitos and Benitos Hat, which have been announced over the past two weeks, and which are likely to be followed by more examples.
In addition, many employees who work in this sector receive tips, gratuities or service charges through a tronc scheme, and for some, this would have covered a substantial proportion of their take home pay. The Government’s furlough scheme does not cover this part of their wages so they are losing out on a significant part of the income that they would have earned if the business was still trading .
Many gym operators have taken advantage of the Furlough scheme to protect their fulltime employees.
However, despite the closure of their physical sites, many gyms have reinvented themselves by offering online classes for consumers to take part at home. Some of these are provided for free via live social media videos, whereas others have sought to implement a subscription based service allowing customers the potential to work out on demand at home.
From a real estate perspective, the uncertainty around COVID-19 is fuelling the appetite for gyms to re-gear their leases and across the sector, we predict that there will be a rebalancing of rents.
As a result of the restrictions on public gathering, all cinemas and theatres , including big groups such as Vue, Cineworld and Odeon are currently ‘dark’ and are feeling the effects of COVID-19 as the pandemic has taken a significant toll on the global industry. London-listed company, Cineworld, currently operates out of 10 countries and has had to close 787 cinemas across the world. As a result, it is currently in talks with landlords and film studios as it tries to save cash resources.
Furthermore, whilst the postponing of anticipated blockbusters such as the latest Bond film “No Time to Die” until late 2020 will undoubtably help audience numbers recover to some extent, there is no doubt that operators are concerned about the possible release of other films straight to the home view market. The long-term implications and worst-case scenarios of the sector are yet to be seen and we will continue to monitor the situation to see how it plays out.
What does the future hold?
Whilst operators and owners are of course heavily focussed on dealing with the current crisis, they are also starting to think about the post-pandemic future. Once the expected staged reopening of different business types begins, each sub-sector will have its own specific issues to address, and the speed of recovery will certainly be variable across different geographies, however across large parts of the leisure sector we expect to see a reasonably rapid return to previous trading levels as customers enjoy being released from isolation or social distancing rules. Other parts of the market may take several months to recover, particularly in London or other locations where international visitors form a significant part of the customer base.
Many of those currently forced to work from home are no doubt full of resolve to use the time to improve their health and wellbeing, and the habits they will hopefully develop should help continue the growth in gym and studio usage which has been a feature of recent years.
Periods of stress always create opportunity, and we are already seeing an appetite from investors looking for value, with interest not only in prime assets but also in operating platforms which are fundamentally good concepts in markets that have strong underlying fundamentals, but whose financial resilience is being tested to the limit by the effects of COVID-19 pandemic.
There will, of course, be businesses that do not survive the crisis, and new occupiers will need to be found for the premises they occupy. This is likely to produce downward pressure on rents, other than in prime locations, and in turn put financial pressure on landlords.
The post-COVID leisure world will, inevitably, look different to that which operated prior to March 20th, but previous demand-side drivers will return, and consumers will want to start enjoying the UKs vibrant leisure sector once again.
Colliers International has launched a free helpdesk to provide London’s independent restaurant, retail, and leisure companies with specialist real estate advice during the COVID-19 pandemic, particularly those who may not have easy access to the high level professional advice available to the bigger firms. The helpdesk will also offer guidance to landlords and will become a nationwide rollout following the London campaign. For further information about Colliers’ helpdesk and to receive advice, click here, fill out the brief form on the website and the team will respond swiftly with a call back or invitation to join a group discussion.