Cautious optimism keeping pub and restaurant markets buoyant, according to Christie & Co’s mid-year market review
22 July 2021Christie & Co has today launched its mid-year review of the UK pub and restaurant markets, which reflects on activity, trends and challenges in the first half of 2021. The review also shares the results of Christie & Co’s latest operator sentiment survey, providing an outlook for the sectors and business operations in the second half of 2021.
The review reveals that the pub market remained buoyant in the first half of 2021, against the challenging backdrop of a third national lockdown and prolonged period of operating restrictions. Consumers responded positively to the reopening of pubs from 12 April, which translated to improving like-for-like trading performance and suggests the bounce-back for the sector will be strong. Ultimately, this encouraged investors to keep a positive, long-term view towards opportunities.
There was an uptick in corporate pub activity during Q1 as some operators began to divest their portfolios and buyers were attracted back to the sector off the back of the government’s Lockdown Exit Roadmap and Budget announcements. Christie & Co announced the first portfolio transaction of the year, with the sale of ten managed pub restaurants owned by Red Mist Leisure Ltd to private equity backed Red Lion Holdings for an undisclosed sum. The team supported a majority of the subsequent corporate activity across the market, which is expected to continue in Q3 once the sector gets back up and running.
For the UK restaurant market, the last six months was a very tough period for operators, particularly as the sector was already struggling prior to the onset of the pandemic in 2020. The decline in the value of the eating out market was expected to reverse in 2021 but is now likely to be the end of 2022 before it experiences a full revival.
Key headwinds in the first half of the year, as highlighted by the review, included restrictions to indoor trading when hospitality businesses reopened from April. Operators were also caught off-guard by the shortage of staff returning to the workforce, due to a combination of Brexit and furloughed workers leaving their jobs for alternative work. There has been a continued move to more simplified menus to mitigate these costly impacts of the pandemic.
On the other hand, the takeaway and delivery sector continued to boom, leading 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!. This exciting result spearheaded a second project to identify 125 new franchisee sites across the UK, which is well underway.
Throughout H1, investors remained most attracted to freehold opportunities in rural and coastal tourist-led locations, which capture trade from staycations. However, the volume of opportunities coming to market was limited, likely due to operators being focussed on reopening and hoping to capitalise on the anticipated summer boom, delaying plans to sell as a result. In addition, the wave of distress that we anticipated for Q2 has not yet materialised due to ongoing government financial support measures.
Encouragingly, the results of Christie & Co’s latest Sentiment Survey indicate a sense of cautious optimism has begun to filter through the market since the last survey in January 2021, with one third of respondents noting they feel positive about seeing some recovery in the second half of 2021 and 49% stating there is potential opportunity due to the successful vaccination programme, easing of restrictions and the strength of the domestic staycation market.
The survey suggests buyer demand for hospitality assets will continue to outstrip supply in the second half of 2021, with 17% of respondents noting they will be looking to sell, whilst 24% said they will be looking to buy. This is positive for sellers and may lead to more competitive bidding and dynamic pricing.
Sentiment around pricing has improved significantly, with 68% of those surveyed believing 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, the team anticipate more operators will be confident to test the market from Q3 onwards.
Key challenges identified for the next six months include the staffing crisis facing the industry, rising costs and food and drink price inflation.
Stephen Owens, Managing Director of Pubs & Restaurants comments, “The first half of 2021 has seen owners hold off coming to market against a backdrop of continued government support and the anticipation of a strong bounce back, as restrictions have eased with the positive vaccine roll out.
“We have seen strong buyer appetite from both established operators and new entrants with more buyers than sellers helping to keep prices strong, particularly for freehold properties in coastal, countryside and lifestyle locations, with competitive bidding for prized assets.
“We anticipate a busy second half of the year and look forward to announcing some exciting transactions in the coming weeks and months.”