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2018: Happy Days But Has Scottish Hospitality Reached Its Peak?

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2018: Happy Days But Has Scottish Hospitality Reached Its Peak?

November 19
14:13 2018

It’s mid-November and the Scottish hospitality sector is in the midst of that bizarre annual lull that occurs just before silly season begins. As they prepare for one of the busiest months of the year, business owners could perhaps take a moment to reflect on the previous 12 months and to look ahead to what the following year may bring in terms of successes, disasters and cautionary tales.

Pete Seymour looks back how 2018 proved for Scottish hotels and restaurants and despite a turbulent time for the latter, predicts a strong start to the year ahead…


SOLD! The Caledonian Waldorf Edinburgh sold to Abu Dhabi-based Twenty14 in January for a record £85m

On the whole, 2018 has been a pretty historic year. The Caledonian Waldorf in Edinburgh (pictured right) sold in January for a record-breaking £85m, while total hotel-deal volume across the year is expected to hit £6.8bn, a 40% increase over 2017, according to PwC. While this is a significant improvement it does not equal the total sales for 2015, which itself ended up the second best year since the last market peak in 2006.

This increased confidence has filtered down to the mid-market hotel band for properties priced between £750,000 and £3,000,000. This year we witnessed an increase in the volume of transactions within this bracket, including a few ‘off-market’ deals. Supply has risen in line with heightened demand, and there has been a real increase the number of properties and businesses being offered to the market in this price bracket. The majority of this activity has come from the banks’ increased willingness to lend against market value, which means the cash required to purchase a decent profit-making hotel operation has somewhat fallen away. Likewise, there has been a significant increase in the number of bidders presenting themselves to agents, itself an indication of a flourishing market.

However, while the Scottish hotel sector has been flourishing, its restaurant counterpart has been struggling, particularly the UK-branded mid-market outlets, many of which have been persuaded to enter into Company Voluntary Arrangements (CVAs) to allow them time to adjust to challenging market conditions. Jamie’s Italian (pictured above), Carluccio’s, Gaucho’s, Byron Burger, Gourmet Burger Kitchen, Zizzi’s and The Real Burger Company have all experienced difficulties. In turn this has dried up the appetite for acquisition, with only Domino’s Pizza bucking the trend. Should there be any further squeeze on consumer spending as a consequence of Brexit – or any other dip in confidence, for that matter – we do foresee further issues for these brands and indeed others.

Meanwhile, public houses have had a robust 12 months although high volume units have perhaps not attracted as much interest as we would have anticipated. On the other hand, sales of the distressed public house have occurred quickly and easily, normally to individuals or developers who are looking to relaunch units either as a public house/restaurant, café or even a children’s nursery.

Within our own organisation, we continue to witness a real and significant increase in overall activity. Our hotel and leisure agency team handled the disposal of some £1.5m in deals last year and concluded in excess of £4.75m worth of deals in 2018. We currently have around £2m under offer, and our acquisition trail is standing at over £4m under offer across Scotland.

Such a bullish market is expected to keep going into 2019 as confidence grows. Of course, Brexit is likely to temper such confidence, although according to the Bank of England there could actually prove an increase in business spending after the end of March, once everyone understands how the future will look. Indeed, if GDP should spike on the back of any deal (however it may end up), consumer confidence should remain high.

Until then, the question remains: Are we at the peak of the market? If the Bank of England is correct, then no, we are probably not. That said, having had a clear run for over 10 years now we are probably ‘due’ a recession, so to speak, and any dip in the economy will likely cause a blip in the hospitality market. Until then, I believe we are in a place where banks are lending sensibly and are realising the value of keeping a business open and trading. This should mean that they will support operators throughout any potential downturn in order to ensure the business’s underlying value is maintained or at least sustained until conditions improve.

Pete Seymour is Head of Licensed Trade and Leisure Agency at Graham & Sibbald. Their team of specialist chartered surveyors are on hand to assist with the sale, purchase or lease of any commercial property or business.

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Catering Scotland

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