After a number of seismic events across the political world, it is still very early to see what impact they have had on the regional hospitality/ leisure market and accompanying deal flow. Over the next couple of years we will ascertain the impact of Brexit and the US elections, but there have been a number of recent trends in the North West leisure industry worth analysing.
MARKET FORCES IN 2016
After a welcome upturn in the UK economy and the return of consumer confidence, 2016 saw a number of short-term hurdles in the hotels market. There is little doubt that in the run-up to the EU Referendum, there was a slight ease off in the market as investors exercised caution. Immediately afterwards, the short-term effect was a delay in deal turnaround times and a number of attempted price chips – perhaps reflecting investor attitudes. That said, as we approached Quarters 3 and 4 there appeared to be minimal impact on the regions as there was plenty of investor appetite to sustain the momentum of 2015/16. There is little doubt that demand in the hotel sector has certainly been augmented by an influx of Asian players in the domestic market. Whilst there has been plenty of appetite in London, this has certainly spread to the North West (prominently North Wales, Cheshire and Cumbria). As well as the well-publicised interest from Chinese and Indian players, there has also been a spike in the number of investors from Thailand, Singapore and Malaysia amongst others.
Countering this inward trend, there have been movements from the bigger PE investors towards the European markets – given the enhanced potential returns in a number of countries. This includes Belgium, Holland and Germany.
As has been well documented, and given the process is still in some flux, it is difficult to assess the ramifications of Brexit. Whilst uncertainty and the adverse impact on interest rates, currency and growth will primarily be felt in London, 2017 will be telling as to whether there are any consequences for the North West market.
Restaurants and Pubs
The other key component of the leisure market relates to restaurants. Transactions in the North West and predominantly Manchester/ Liverpool have proliferated over recent years as a result of a number of factors. Research shows increasing portions of an individual’s leisure spend now goes on eating out. There is a particular trend relating to the leisure habits of teenagers and other young adults who now appear to prefer meeting in restaurants rather than pubs. Other more remote factors, such as student debt management and the accessibility of all-day dining, have also played their part.
Against this welcome rise in restaurant transactions in the various Northern conurbations, are the consequent factors of increasing rent/lease premiums which directly affect profit margins. A number of informed observers in London see restaurant purchases peaking in 2017 as growth is not easy to sustain. However, the demographics and markets of the key cities in the North West will hopefully see demands continue.
The pub sub-sector continues to battle against an increasingly competitive market. After the demise of many pubs in 2009/10, there has been plenty of growth in pub deals over the last four years. This is particularly seen in the North West’s more high net worth areas which is in line with the demographics of the restaurant sector.
In general, pub volumes have seen a quieter 12 months with basic factors such as increases in payroll costs/ the national living wage being a factor. Brexit is also likely to have some effect with investment being effected and the possibility of restrictions on foreign labour. Nonetheless there has been plenty of activity with demand for high value sites/ and good quality freeholds. Other North West trends have seen pubs with letting rooms becoming more popular as well as those with affiliated restaurants. 2017 will be an interesting year for this sector.
There is plenty of ground for optimism across all of the leisure sectors in the North West. Domestic demand remains high and there is little doubt as to the impact of Asian investors from the Far East and Indian sub-continent. Against a background of consumer confidence and natural exits – deal-making continues to flourish.
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