There’s plenty of chances for investment and growth over the coming year for shrewd hospitality operators who can tap into the trends. The team at Christie & Co tells The Caterer where the profits lie
Despite the well-documented struggles of restaurant chains in 2018, the year for many hospitality operators was surprisingly upbeat.
Though there is undoubtedly renewed uncertainty following last week’s Brexit vote, the hospitality sector appears robust, according to the Christie & Co Business Outlook 2019: Navigate, Innovate, Accelerate.
The report, which reflects on the themes, activity and challenges of the previous year and forecasts what 2019 might bring, suggests that independent restaurants could thrive this year, while revenue per available room (revpar) in hotels is set to increase, albeit at a slower rate than last year. The prediction for pubs is also largely positive, with those that have added letting rooms being particularly well-placed, despite rising cost pressures.
Christie & Co managing director Chris Day said: “The highly publicised struggles of big chain brands in the casual dining space have cast doubt in the market; however, the issues really stem from oversupply rather than a lack of customer demand. Operators who distinguish themselves from the crowd and present a unique offering are thriving, along with those who continue to reinvest and innovate. This is true across all sectors, where being able to adapt, adopt new trends and introduce relevant technology to improve services and cost-effectiveness will see any business prosper compared to those who have failed to prepare for the future.”
He added that though there was some slowdown in the markets in which Christie & Co operated at the end of 2018 due to Brexit, this is likely to be short-lived, with the hope that clarity about the outcome will lead to a boost in market confidence.
Day said: “Looking ahead to 2019, the market will continue to realign itself along with consumer demand, and in every sector the quality businesses moving forward with future developments are set to continue to thrive. New concepts are coming to market all the time and, with technology evolving, the time has never been better to capitalise on new opportunities in business.
“There continues to be an abundance of capital available, despite some caution from the larger banks, and there is still plenty of opportunity for funding through smaller banks, Funding Circle, angel investors and private equity.” Day believed that with so much capital trying to find a home, shrewd, independent operators should be encouraged, particularly as venture capital is increasingly looking to support hospitality start-ups.
Hotels
A number of large portfolio deals in 2018 overturned Christie & Co’s predictions for the amount of hotel transaction achieved during the year. At the beginning of the year, the company said that it expected there to be a slight decline in total sales during 2018 following an 18% year-on-year increase to £5.3b during 2017. However, as the result of the likes of the £858m acquisition of the Principal hotel group by French group Covivio, the number of hotel transactions increased in value year-on-year to £6.5b.
Last year also saw a number of major single-asset sales, including that of the Waldorf Astoria Edinburgh – the Caledonian for £85m.
Barrie Williams, managing director of hospitality at Christie & Co, said that predictions can be thrown off-course by unexpected major deals.
Key hotel deals for Christie & Co in 2018 included the sale of the 135-bedroom Eynsham Hall near Woodstock, Oxfordshire, off an asking price of £8.25m by Cathedral Hotels to Ennismore, owner of the Hoxton brand and Gleneagles, and a portfolio of five Marriott properties to Britannia Hotels.
Williams said one of the largest deals that could go ahead this year is that of the 17-strong Grange Hotels collection, privately owned by three brothers, Harpal, Raj and Tony Matharu, with a price tag of around £1b.
The price of hotel assets has consistently increased since 2014, albeit at a slower rate year-on-year since then. While prices rose by 17.2% in 2014, that increase had slowed to 4% last year and Williams expects that the rise in hotel prices will fall again this year.
“While the rate of increase is likely to be slower, we still expect prices to rise as there is a lot of interest in assets by a number of different parties, both institutional and family owned, and from a number of different locations, including India, Israel, Singapore and Hong Kong,” explained Williams.
The biggest concern for hoteliers during 2019, according to Christie & Co, will be the ongoing increase in costs, including food, rates and staffing, following a rise of about 20% over the past two years. As a result, a revpar increase of less than 1% is predicted, down from 1.5% in 2018, with earnings before interest, tax, depreciation and amortisation largely remaining flat.
In terms of new hotel supply, there are likely to be more than 10,500 new rooms across 85 hotels opening in London and an extra 25,500 new rooms across 295 hotels launching in the regions from July 2018 to the end of 2019. The key cities for growth outside London include Manchester, Liverpool, Edinburgh and Belfast.
Williams did not expect that the ongoing expansion of the hotel sector will lead to saturation of the market. “Every year there are more and more openings, and every year there is always more demand to meet the growth, which over the past two years has come about as the result of an increase in tourism and the weak pound.
“No matter what the standard of the accommodation is – whether it is budget or five-star, hostel or aparthotel – it all appears to be working, while at the same time there is a drop off of hotels at the lower end of the market, where there has been no investment.”
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