Food shows glimmer of light

Richard Negus Director, Fleurets London

Credit crunch, smoking ban, rising food costs and energy bills, all make for depressing reading for operators in the hospitality and leisure sector.

With talk of recession, publicans, restaurateurs and hoteliers brace themselves for tough times as consumers tighten their belts. Consequently, leisure property values, like other commercial and residential property values, are under pressure as supply increases with more business failures, combined with falling purchaser demand due to a lack of confidence in the sector. The situation has been exacerbated as the banks become increasingly nervous of lending without added security. Despite all the doom and gloom, the leisure property market remains strong for those with funds who are able to capitalise on new opportunities.

With some of the country's leading pub operators claiming the worst trading times in memory, the multiple restaurateurs seem to be weathering the storm with the likes of Gondola, The Restaurant Group and Tragus continuing to actively seek new opportunities for expansion, particularly in high street pubs, suitable for restaurant conversion. Whilst economists advise that eating and drinking out is normally the first area to suffer in a poor economic climate, good food pubs and fast casual restaurateurs seem to be bucking the trend, as consumers seem reluctant to sacrifice eating out.

With food seen as the answer to the trade's woes, restaurateurs have not been immune to the current tough trading conditions. The restaurant sector is renowned as a market where more than half of all new businesses fail and therefore whilst the multiples continue to acquire new sites for their proven brands, many of the established/ emerging fast casual operators are beginning to review some of their early acquisitions, as they begin to churn their unprofitable sites. The winners are those operators able to seize upon such opportunities.

Far from being a "bear market" the leisure market remains strong for those businesses where ingoing costs are affordable. The cost of entry for many leasehold pubs, nightclubs and restaurants, remains relatively low, and many opportunities exist at premiums below £100k and even nil premium in some cases. The area most affected post "credit crunch" seems to be freehold leisure properties where buyers are increasingly seeking to renegotiate prices and where finance is harder to come by with banks now more reluctant to support "risky" leisure investments. Moreover, valuers of freehold properties are naturally erring on the side of caution with uncertain times ahead.

The leisure and hospitality industry continues to evolve and change to meet consumer demands and whilst tough times are expected in 2008, the sector has been through this before and will go though it again.

As with any changing market, there will be winners and losers and those able to weather the storm or adapt best to changing demands will emerge stronger.