Hospitality transaction market recovering, but sector ‘not out of the woods yet’

Business property adviser Christie & Co has today launched its annual Business Outlook report, analysing 2021 and forecasting what 2022 might bring across industries including hotels, restaurants and pubs.

Hotels

While the beginning of 2021 was a challenging period for hoteliers, the lifting of travel restrictions from May saw the sector regain momentum, albeit with stark differences across regions and markets. In parallel, the hotel property market experienced a resurgence of transactional volumes, indicating more active deal flows and increased investor confidence in the sector recovery curve.

A lack of opportunities coming to the market, particularly those of scale, often drove price competition and there was minimum impact on pricing as a result. Christie & Co’s hotel price index for 2021 saw a moderate recovery, with average prices increasing 4.3% on 2020.

The 50% increase in deal volume versus 2020 and the 30% uplift in the number of offers received illustrated an appetite for hotel assets.

The group predicted that demand for business and international travel will likely pick up, which may lead to a correction in domestic leisure demand and average daily rates (ADR).

However, given Omicron, any recovery in occupancy, notably in corporate destinations, may be further delayed into the second half of 2022. The report said hoteliers would try to keep ADRs high to absorb some of the cost pressures, while operating margins will continue to be impacted by significant economic pressures, staffing shortages and payroll increases.

Christie & Co said transactional volumes were likely to increase in 2022 but a wave of distressed activity would be unlikely, although the market may start to see some larger-scale opportunities.

The group forecasted that sustainable buildings, renewable energy and carbon offset schemes will be highly sought-after, although the development pipeline was likely to slow down due to rising construction costs and limited financing appetite.

Carine Bonnejean, managing director of hotels at Christie & Co, said: “The rise of Omicron towards the back end of 2021 certainly impaired trading over the Christmas period and depleted cash reserves from operators, creating some significant additional stress, particularly as we enter the low season in the first quarter. However, on a more positive note, this is likely to create another strong year of staycations for UK hotels.

“Nevertheless, buyers are still as interested as ever by the sector and frustrated by the lack of opportunities at all levels. As shown by our price index, competition is positively impacting sales proceeds and we are unlikely to see a substantial change to this dynamic until the end of Q1 2022 at the earliest.”

Restaurants

Meanwhile, Christie & Co’s restaurant price index for 2021 saw average prices drop by 12.9%, a more moderate decrease compared to 2020.

Despite this, the report said opportunities still existed for restaurateurs, with certain markets such as takeaway and delivery, franchised businesses and quick-service restaurants having seen growth in 2021.

Further casualties were predicted, both large and small, as landlords start to demand rents and other debt payments, as well as growth opportunities as sites are vacated and rents fall, and a return of guests to major towns and cities this year.

Pubs

The report also revealed that the pub transactional market remained buoyant in 2021 and Christie & Co’s pub sales volumes were up 103% on the previous year. Despite the unpredictability of the market, 47% of these were sold to private buyers and 87% were purchased for continued use as a pub. Freehold assets with letting rooms in popular rural and coastal tourist locations remained most attractive, driven by the staycation boom.

Throughout 2021, the large pool of buyers seeking quality pubs outstripped the level of supply, as many operators managed to weather the worst of the Covid storm due to government support. This imbalance created an upwards movement in Christie & Co’s pub price index for 2021, with average prices increasing 3.3% on the previous year.

Market predictions were of a race to ‘premiumisation’ and operational efficiencies to help drive margins, the continuation of ‘localisation’ and working from home for regional towns and cities, and some increase in supply as operators re-evaluate their estate post-Covid.

Stephen Owens, managing director of pubs and restaurants at Christie & Co, said: “During 2021 we saw demand exceeding supply for the right kind of assets and this resulted in positive price movements, notwithstanding the operational and financial challenges that Covid brought. As we move into 2022 and with hopefully the worst of the pandemic behind us, we can expect a more normal trading environment with an increasing number of buyers and sellers returning to the market.”

Speaking on a webinar this morning launching the report, journalist Robert Peston warned: “For millions of people there will be a massive drag on what they have available to spend, and that is going to be the big economic story of this year by quite a wide margin.”

Darren Bond, Christie & Co’s global managing director, added that hospitality “is probably going to have a lot of pressure once the life support machine is turned off in terms of government support… I don’t think we’re out of the woods yet.”

Read the full report here.

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