City centre landlords face a "dilemma" and will have to accept lower rents on prime restaurant sites going forward, according to a property expert.
Simon Chaplin, senior director of the corporate pub and restaurant team at Christie & Co, told The Caterer that the pandemic had left many once prized sites empty as hospitality businesses looked to open in the suburbs.
"I've got some central London sites that would have been worth six or seven-figure premiums but are getting handed back to landlords," said Chaplin.
"They're still trying to charge the rents they got before [the pandemic] but instead are having to offer concessions or a rent-free period. The whole balance has gone, everyone used to want to be in the West End or Soho, now they'd rather be in Lambeth or Golders Green."
According to Christie & Co's Business Outlook 2021 report restaurant prices dropped an average of 17.5% in 2020. Nearly 60% of operators surveyed said they expect to see further deductions in 2021.
Chaplin added that the rapid expansion of casual dining brands over the past few years had ‘come home to roost' after groups including Byron, Carluccio's and PizzaExpress were forced to permanently close locations last year.
Christie & Co also handled the sale of the Jamie's Italian restaurants in 2019.
"You can't have 3,000 sites opening every year and expect it to continue, we were starting to see the cracks around the edges in 2019."
Chaplin anticipates there will be more opportunities for independent businesses to take on prime locations as big-name brands have proved unreliable to landlords.
"You can split an ASK Italian site into three independent venues and create variety that would bring people back to the high street.
"But landlords are going to have to take the hit and accept that rents will be 25% lower for the next three to four years. I expect turnover rents will become much more popular."
The Business Outlook survey saw restaurant operators report a 20% surge in takeaway and delivery sales in 2020.
Chaplin anticipates there will be increasing interest in A5 delivery sites going forwards, and Christie & Co is working with Pizza Hut Delivery to expand its c.400-strong portfolio.
He is confident the restaurant property market could bounce back by 2022 if hospitality can reopen in some form this summer.
"From conversations with buyers and operators there's still a lot of optimism. People will want to come back to restaurants when they can and may be willing to pay a bit more because they appreciate what they're missed. There was a lot of price cutting before and I hope operators will be firmer.
"The demand [for property] is still there. In a year's time it won't be back to normal, but it could be back to 80% what we want it to be. But it's critical businesses can open by the summer in almost all their normal capacity."
To view the full Business Outlook report click here.