Business Outlook 2013: What’s next for hospitality?

By Luke Nicholls

- Last updated on GMT

Related tags: Hotel

Christie & Co's 2013 Business Outlook launched yesterday at Merchant Taylors' Hall in Threadneedle Street
Christie & Co's 2013 Business Outlook launched yesterday at Merchant Taylors' Hall in Threadneedle Street
Smaller, up-and-coming pub operators will have more opportunities to expand, restaurateurs will begin to divert away from the high street and more hoteliers will begin actively preparing for recovery.

These are some of the conclusions of Christie & Co’s 2013 Business Outlook publication, which studies price information across the hospitality industry for the past 12 months and looks into the year ahead.

According to the Outlook, which launched yesterday, average business property prices dipped for the fourth time in five years in 2012, although these falls were contained by the determination of investors and operators alike to keep the market mechanism functioning.

Pubs

Pubs demonstrated continued resilience in 2012 as experienced operators and private equity houses continued to express their confidence in the sector, in a year which saw average sale prices for pubs fall by 3.3 per cent.

Pub
The Cornish Arms in West Devon was recently sold by Christie & Co for a leasehold of £69,950

Christie & Co increased its pub sales by almost ten per cent in the 12-month period and the group’s director and head of pubs, Neil Morgan, said: “Over the last few years, the pub industry has faced a seemingly insurmountable range of issues – including licensing changes, smoking bans, declining beer sales, off-trade competition, increasing taxes, rising costs, and anti-social behaviour.

“While these challenges have claimed many casualties and prompted a decline in pub numbers, the industry as a whole has demonstrated its ability to adapt and survive.

“Owners and operators are continuing to work hard to maintain trade and widen pubs’ appeal. The modern pub is no longer reliant on beer drinkers; it has become an invaluable community asset.

“Embracing many of the ideas shared by the ‘pub is the hub’ organisation, licensees have started offering a range of products and services to meet the needs of the local population and successfully increase revenue.”

Looking ahead to 2013, Morgan believes there are reasons why the pub sector, certainly from a transactional perspective, will be even more vibrant.

“As pub companies continue to widen their appeal, improve their trading performance and boost investor confidence, we expect the transactional market to become a little more dynamic in 2013,” he said.

“The banks and big pub companies will continue churning their estates and disposing of assets – generating opportunities for the smaller, up-and-coming operators to expand. Whilst the majority of deals we witnessed during 2012 were individual and small portfolio sales, we can expect to see some bigger transactions in 2013 as confidence grows.”

Restaurants

In what Christie & Co calls a ‘stifled’ transactional marketplace, average sale prices for UK restaurants declined by a marginal 1.4 per cent. But consumer appetite for eating out in 2012 remained undimmed.

Rest
Tiffanys restaurant & café in Harrogate was sold by Christie & Co at an asking price of £350k

One trend highlighted by the Outlook is that a scarcity of new opportunities has forced acquisitive restaurant operators to widen their search for new sites, with high streets losing their appeal, perhaps due to the number of retail business failures and the volume of vacant space.

Simon Chaplin, director and head of Restaurants at Christie & Co, said: “Despite spending cutbacks and dips in retail sales, UK consumers have consciously chosen not to curb their eating out.

“Our enthusiasm for visiting pubs, restaurants and takeaways hasn’t diminished – in fact there’s plenty of evidence to suggest that the average number of dining experiences enjoyed outside the home will grow over the coming months.

“The quick-service sector, which features brands such as McDonald’s, KFC and Domino’s Pizza, is the segment that offers the cheapest meals and unsurprisingly continues to grow.”

While major operators were reluctant to acquire many sites outside London during 2012, regional groups and individual restaurateurs were happy to step in. And, looking ahead positively to 2013, Chaplin added: “Eating out is firmly ingrained in consumer behaviour and we are confident that the value of the restaurant market will continue to grow.

“Against a backdrop of rising costs and tough competition, the challenge for restaurant operators will be to provide consumers with the most convenient, cost-effective solution.”

Hotels

Following what was a morale-boosting 2012 for hotels (thanks largely to the Olympics), the sector is now ‘close to reaching the bottom of the value curve’, but the Outlook concludes that hoteliers should brace themselves for further challenges this year.

Hotel
The 50-bedroom Longmynd Hotel in Shropshire was sold off an asking price of £1.75m

From a transactional perspective, average sale prices for hotels fell by 3.1 per cent. But despite the continuing economic downturn, market liquidity in the sale of hotels was actually maintained.

Director and head of hotels at Christie & Co Jeremy Hill said: “Fortunately, the market was prevented from stalling altogether in 2012 by those who had a genuine need to sell and were willing to accept realistic prices.

“Although some individuals and organisations adjust to change more quickly than others, they have all been through a similar process. Most hotel owners and operators have progressed from denial to acceptance and now, five years after the downturn started, many are actively preparing for recovery.

“Owners, operators and investors have all become much more sensible and realistic, believing that trading conditions have stabilised and accepting that values are unlikely to move much lower. Transactional activity increased during 2012, as a result of realistic pricing and buyers’ consequent willingness to engage in the deal-making process.

Christie & Co believes that investors and lenders are finally starting to wake up to the fact that hotel values are at, or at least close to, the bottom of the curve. With some very well-priced opportunities coming onto the market, anyone who’s sitting on the sidelines is starting to think very carefully about getting back into the game.

Hill added: “With vendors taking a much more realistic approach to asset pricing, we can expect to see further well-priced opportunities in 2013 which will attract even more investor attention. A sense of normality should return to the market – where the marketing of assets generates viewings and offers.”

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