Christie & Co predicts continued investment in UK hotels and pubs
Hotels and pubs are predicted to attract more investment than restaurants in the year ahead, according to research from specialist business property adviser Christie & Co.
In its 2024 Business Outlook Report, Christie & Co revealed UK hotels have continued to be classed as "strong, inflation-hedging assets in comparison to other commercial real estate, such as office or retail", which resulted in an 81% increase in hotel deals agreed between H1 and H2 2023 that is set to "positively impact transactional volumes during 2024".
The property adviser also predicted a rise in assets coming to the market from hotel owners who may be forced to refinance at higher margins or exit government contracts, which amount for roughly 5% of all UK hotel rooms.
Its research suggested traditional lenders favour experienced hotel operators who have developed additional income streams on their properties, such as extra function rooms, while alternative banks are more open to "new entrants with either hospitality experience or transferable skills".
Meanwhile pubs, which witnessed an 8% increase in transactional volumes in 2023, have been hit by the return of private buyers, with leaseholds proving to be particularly attractive.
Tenanted pub companies accounted for almost a quarter of freehold buyers in 2023, up from just 12% in 2022.
The vast majority (86%) of Christie & Co pub sales were sold for continued to use, which also demonstrated ongoing demand for the sector, with the pubs with rooms market remaining "more robust than expected".
The property adviser added regional and national pub companies will look to rationalise their estate and sell off their "bottom end pubs", with limited M&A activity expected in the market.
By contrast, the outlook for restaurants was more subdued, with mid-market casual dining named as one of the areas that will "continue to struggle for real growth".
With 4,000 restaurant closures since 2018, and many more announced at the beginning of this year, Christie & Co conceded securing finance in this sector has become more difficult due to lenders being more "wary of current market conditions and distress" over the last four years.
That said, the property adviser added the uptick in insolvencies could attract new entrants to the restaurant landscape, which could see a faster return to profitability this year due to softening food inflation.
Building on the momentum from 2023, demand for franchise businesses has continued to rise due to consistency becoming "more important than ever" in a cash-strapped market.
In Christie & Co's additional anonymous survey, 63% of restaurant professionals said they were looking to sell, compared to 42% of hotel professionals and 25% of pub professionals who were looking to buy.
Simon Chaplin, senior director of pubs, restaurants and franchise at Christie & Co, said: "In a year when closures reached a peak of five a day in Q1 2023, and over 2,000 businesses closed during a 12-month period, it's clear to see it was a difficult year for restaurants. However, this may have represented a catch-up year from a tide that started in 2018. Such adversity often sees the best look to innovate and we are already seeing operators, large and small, review their business, tighten up on costs and fine-tune their audience.
"This is most evident in the QSR (quick service restaurant) market, where we have seen sustained growth since Covid, as new and exciting franchise brands bring their offer to the UK market. As a result, the consumer will benefit which will keep them coming out for more, breathing life back into the industry."
Carine Bonnejean, managing director of hotels at Christie & Co, added: "Despite a softer transactional market during 2023, our UK hotels team continued to be the leader in hotel transactions, having brokered the sale of over 65 hotels last year. Activity has already picked up during the first few days of this year, with a call to action from owners and lenders in particular."
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