With lockdown easing, the sun shining and the success of the UK vaccine programme, there is optimism in the air for the hospitality sector and this is reflected by a huge increase in market activity, with many agents reporting a significant increase in viewings and offers, and deals starting to come through.
Operators anticipate reaping the rewards of pent-up demand after this prolonged lockdown and seeking opportunities to increase their market share. They recognise the market is smaller and competition diminished and the opportunity to get prime sites is greater.
The operators without the legacy of over-expansion and non-viable sites have pivoted their offering in the lockdown and plan to emerge from this crisis stronger than ever. These fledgling, innovative hospitality groups will undoubtedly drive recovery in the sector.
With all this optimism, it is tempting to downplay the lasting impact of Covid and the £53bn lost to hospitality in 2020. So, is it possible that the hospitality sector can come out of this crisis unscathed?
Sadly, I don’t think so. I believe that what we are witnessing is the calm before storm. While spring is in the air and a full reopening is on the horizon over the coming weeks, it cannot be forgotten that the sector has accumulated a mountain of rent debt.
By failing to address rent debt and prolonging a commercial lease moratorium, the government has created a false economy that once expired will give the industry its day of reckoning.
While many forward-looking landlords have supported tenants in a quest to keep doors open, a huge number have not.
After a year of barely trading, many operators lack the funds to pay these debts or even the working capital needed to reopen. When the lease moratorium expires, we will unfortunately see an uptick in insolvencies. Some predict that as many as 30% of hospitality venues will not reopen at all after lockdown.
This will result in more stock coming onto the market. While demand is improving, it is still muted compared with pre-Covid levels. With the supply/demand dynamic changing, rents and lease terms such as upward-only rent reviews will come under pressure as a new, more partnership-based leasing model emerges.
The day of reckoning is inevitable. That said, as challenging as the past year has been, it has sparked huge innovation and creativity in our beloved hospitality sector. While furloughed, operators have been creating new concepts and developing ideas. Experience and true hospitality are going to be absolutely key in a survival of the fittest landscape.
Camilla Topham is co-founder of Distrkt and Residency