“A year like no other”, “unprecedented”, just a couple of the phrases that have been used widely over the last 12 months as the world has reacted to the COVID pandemic. The hospitality and leisure sectors have been some of the most seriously affected parts of the UK economy, with many segments having been compelled to shut for at least 62 per cent of the year, and to have restrictions on trade for much of the remainder. The enforced closures meant that key trading periods were lost, leading to significant financial pressures on business owners and furloughed staff.
Government has, generally, been supportive of the sector and whilst everyone wants to reopen at the earliest opportunity, it is understood that this must take place in a phased and careful manner. The remarkable resilience shown by owners, operators and investors means that most pubs, bars, restaurants, late night venues and leisure businesses will soon start to open their doors again and welcome back their customers. The evidence from the all too brief period last summer when trading was permitted, clearly shows that the public are as keen as ever to go out for a meal or a drink, have a weekend away or visit theme parks, golf courses and gyms.
It will take time for businesses to recover, particularly those dependent on international tourism, shoppers or office workers, but for those operators, large and small, who have hung on and remained solvent there is now a light at the end of the tunnel, and an opportunity to start rebuilding.
The market is still attractive
Throughout the pandemic confidence has remained in the long term future of the sector. Most major pub companies have supported their tenants, working alongside them to improve and upgrade premises, in a clear vindication of the benefits of a symbiotic, economically-aligned relationship between property owners and operators, and perhaps offers some hints to other sectors of a viable way forward.
From a property perspective, whilst transaction volumes over the last 12 months have understandably been reduced, we have seen no shortage of interest from existing operators keen to grow their estates, and demand for the best sites has remained strong. In terms of M&A activity we have already seen Marston’s rebuff an approach from US based Platinum Equity, whilst former Greene King CEO Rooney Anand has secured £200million of backing from Los-Angeles based Oaktree for his newly formed Redcat Pub Company. We are aware of other investors who are also looking for opportunities, and whilst sizeable portfolios are currently scarce, it can only be a matter of time before this level of interest tempts some current owners to test the water.
One cloud on the horizon however is the need to deal with the mountain of rent arrears which many operators of leasehold assets have built up. Once the current moratorium on lease forfeitures comes to an end in June there is a risk of otherwise sound and viable landlord and operators’ businesses failing because of an inability to agree a solution. This issue needs to be dealt with in a way which shares the burden between landlords and tenants, and will require political will and the support of investors and lenders to agree a timely and workable way forward.
Overall we predict that 2021 will prove to be a good year for the hospitality and leisure sectors, both in terms of operational recovery, and from a property market perspective, with lots of opportunity, strengthening returns and the chance for imaginative and committed participants to thrive in the post-COVID environment.
About the Author
James Shorthouse, head of Alternative Markets at Colliers, is one of the UK's leading advisers in pub, bar, restaurant and leisure sectors. He has worked in the sector for over 30 years, a period during which the sector has undergone enormous changes in its operational, ownership and regulatory structures. To get in touch, contact James.Shorthouse@colliers.com.