The hospitality sector traditionally balances on fine margins, and the huge reduction in cash flow numerous businesses have experienced throughout the pandemic has compromised the ability of many to continue trading profitably. In fact, accountancy firm UHY Hacker Young has reported that 296 UK restaurants shut down in Q3 compared to 226 in Q2, a sharp increase even before the rise in VAT on food and the final end of the furlough scheme take their toll.
So with the unfortunate forecast of further shutdowns before the end of the year, what can be done with all the vacant space left behind? Landlords and tenants alike have been putting their minds to re-purposing buildings, even before the pandemic, but now the need is blatant and Savills estimate that, without intervention, almost 308 million sqft of retail space could be redundant before 2030.
Mixed-use developments with a community focus have been strongly favoured as a long term solution, particularly for town centres. However, these are not a quick fix and a great deal of collaboration between landowners, investors, the local authority and the local community is required to establish such a project.
A long term solution for larger vacant spaces has been to convert them into experiential entertainment venues. An example is the former Debenhams store in Wandsworth, which now houses a trampoline park along with various bars, restaurants, go-karting, street golf and darts.
It might be that in the short term, Landlords who don’t usually develop consider the more transient market of ‘pop-ups’ and seasonal restaurants and shops. This delivers a solution for vacant property whilst providing the hospitality sector with flexible space to adapt to a changing customer landscape. Alternatively, collaborative working spaces with various food and beverage offerings could be provided to tap into the growing market of people working outside of the traditional office setting.
Other options include the increasingly popular e-commerce or logistics set-up, something which could be a short or long term solution to assist with the growing online market for goods and also food and drink deliveries.
Moving forward, it will certainly be important for landlords to consider their long-term plans for property in the context of the wider community they inhabit, but in the meantime, consideration should also be given to the flexibility being offered to hospitality and retail tenants. For example, shorter contractual terms, simple licences, turnover rents and alienation provisions which allow sharing with various concessions. All of which will facilitate the changing needs of hospitality and retail traders whilst helping to maximise the occupation of property in the long run.
If you would like to know more about the opportunities for re-purposing hospitality and retail property or our Real Estate expertise, please contact Lynsey or your usual Charles Russell Speechlys advisor.
UHY Hacker Young shows that the number of UK restaurant insolvencies has jumped 31% to 296 in the last quarter, up from 226 in the previous quarter.