A perfect storm of empty premises and less competition could make this hospitality's golden hour, say Will Baxter and Payam Keyghobadi.
As the hospitality sector emerges from one of the most devastating periods in its history, operators are navigating new challenges in the form of labour shortages, self-isolation rules, rising food prices and the need to reinstall confidence in more cautious customers.
Yet despite these ongoing issues, the recovery is under way and there are signs of renewed activity in the investment market.
A number of sophisticated operators have already signalled their intent, including US chicken concept Wingstop. Its recent investment in its UK franchisee – a deal on which we advised – will help drive expansion across the UK. The deal was the first overseas investment for Wingstop, which describes the UK as "a market with tremendous long-term potential".
Meanwhile, others are watching the market closely and waiting for the right opportunities. In our work advising corporates and investors, we are seeing a sharp rise in instructions from clients seeking to raise capital to bolster their balance sheets and provide a war chest for future expansion. We are aware of a number of new investment vehicles set up specifically to target the hospitality sector.
We are aware of a number of new investment vehicles set up specifically to target the hospitality sector
The fact is that there are strong grounds for optimism. Operators who have survived the pandemic could emerge stronger than before by rebuilding their dine-in business while maintaining their delivery trade. There will be less competition for customers and, as the number of voids increases, less competition for properties too.
While the government's ban on evictions has been pushed back until next March, Michael Macpherson of Hay Hill Property – who has helped many operators with strategic lease restructuring – says he still expects further supply to come to market over the next 12 months, providing opportunities for new and expanding businesses alike.
While landlords will be more willing to compromise, one of the key takeaways from his negotiations has been the importance of a tenant's financial strength. Well-funded and resilient operators will be rewarded with greater incentive packages. Once the eviction ban does come to an end, the closure of struggling retail stores could also open up a new source of labour.
London – which has long been the ‘leisure capital' of Europe – will re-emerge as a vibrant location for food, entertainment and culture, and where London leads in terms of pioneering new concepts and trends, other UK cities follow.
Meanwhile, the growth in staycations and renewed interest in sport, leisure and outdoor activities is opening up new and exciting opportunities at other locations throughout the UK.
A barrier to growth for many businesses is that, with venues closed for so long, they lack the trading data required by potential investors. However, following the easing of restrictions, a period of normalised trading will allow them to rebuild their track record. Therefore, as consumers return, so will confidence and corporate deal activity.
After the dark days of the pandemic, the future could bring once in a generation opportunities for the hospitality sector – let's make the most of it!
Will Baxter and Payam Keyghobadi are corporate finance advisers with Dow Schofield Watts and specialists in the hospitality sector
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