The market has never felt harder to predict. Early in January on a Tuesday evening I visited a West End foodhall and was astounded by how busy it was.
With the buzz and the drinks flowing, it could have been a Friday night. Why were people out, I was asking. Isn’t everybody supposed to be dry and broke? Clearly not from what I witnessed and this tallies with buoyant hospitality trading reports following the Christmas period, defying somewhat the pessimistic predictions of last year. It seems that following one global crisis after the other, we are completely unwilling to give up our hospitality experiences.
While this is positive news, the trading backdrop is currently not without its challenges. Energy and staffing woes continue, and operators are now contending with ever-fluctuating patterns of trade as they try to predict and react to our changing habits, which following on from the pandemic are ever evolving.
If 2022 was the year of working from home, then this year people are returning to the office. A school of thought is that with the looming recession, and inevitable redundancies on the horizon, there is some ‘showing of face’ and resultantly the uptick in footfall in office-led locations is clear, as is noise of big expansion plans from grab-and-go operators.
Despite improved footfall, Tuesday to Thursday still rules, with the Friday boozy lunch now consigned to history, Wednesday nights are the new Thursday and people are no longer willing to work late into the evening. Combined with this, operators are also juggling their own changing patterns, the rise in costs has made it cheaper for them to close certain days and many will shut for part of the week, with many others likely to follow. This will be more commonplace in the regions where footfall is more skewed to the end of the week unlike the West End, which appears to be stronger than ever.
The never-ending train strikes have been a further blow to the sector and wiping out hospitality and leisure trade the week before Christmas was a huge blow to the industry that not only hasn’t had a Christmas trade for the past two years but relies on it. The unexpected result was an incredibly busy trading period between Christmas and the new year, a traditionally quiet time when most restaurants choose to close. Neighbourhoods have been the winners of the strikes, though, and by keeping people out of centres these locations have continued to thrive.
The backdrop remains both challenging and unpredictable, and following on from relentless operational and economic headwinds in 2022, over-leveraged groups are struggling. This will result in medium-sized groups downsizing their property portfolios and we will see an increase in company voluntary agreements (CVAs) plus liquidations as the survival-of-the-fittest backdrop becomes more competitive. This will release more fitted restaurant stock on to the market, which is the preference to the cash-strapped occupational market. This is not helped by nerves over lending and increased interest rates, which will hinder rental growth for landlords and ensure capital contributions are not going anywhere for shell spaces.
Forecast growth for the hospitality sector is expected to reach 2.3% in 2023 – a strong message of resilience considering the backdrop and the challenges the industry is currently facing. The experience of eating out and of hospitality is in high demand, but it must be great quality. While cash-strapped consumers are slashing their spending, they are not willing to do this in their favourite restaurants, bars and leisure concepts and are very content to pay for experiences that offer something different.
Landlords must, therefore, continue to focus on experience in curating their developments and estates. We are in a new era of ‘anchor’ tenants. Hammerson’s recent announcement that it was proposing to convert the former John Lewis in the Bullring into ‘Drum’, a new workspace and leisure hub, demonstrates this, and ‘retail-tainment’ is a buzzword we are hearing with more frequency. Hospitality and leisure will continue to be resilient in 2023 and drive the market forward, but one thing is for certain: it will not stay the same.
