The hospitality sector bore the brunt of lockdown: restrictions on table sizes, social distancing rules, cancelled sports and entertainment events and a severe reduction in international tourism threatened its survival. However, our data shows that the leisure sector remained resilient overall, rebounding strongly in 2021 and continuing to see growth in H1 2022. But there are still a lot of elements for the industry to battle against in the near future.
How did the industry adapt as it headed into and out of a pandemic? What can we learn as the sector continues to rebuild amid remaining challenges?
To attempt to answer these questions, we use data from 2019 through to 2022 to gather some insights. LDC divides the leisure sector into several categories: accommodation, cafés & fast food, restaurants and entertainment (cinemas, bookmakers, competitive socialising).
2019
In 2019, the GB leisure vacancy rate was 8.9%, the highest since records began, with rising rates, high rents and increasing competition in the casual dining sector. It is worth mentioning that some categories in this sector faced increased regulations at this time. For example, bookmakers were one of the fastest-declining categories in 2018 as the rules on fixed-odds betting terminals came into effect, which significantly impacted profit.
However, the level of leisure stock across the 650 biggest UK towns was 8.1% higher than it was five years before. Huge investment drove aggressive growth in the F&B space as the popularity of eating out increased and shopping centre operators invested in food courts at their centres to increase dwell time.
Facing the threat of CVAs and the consolidation of some retailers’ store estates, shopping centre landlords moved to diversify their mix and reduce exposure to retail. Plans were put forward to redevelop space into hotel, leisure and residential units, depending on catchment demographics and demand in surrounding areas. Retail parks were also looking to diversify their retail mix at the time, introducing more experiential leisure facilities to provide strong customer touchpoints and a more vibrant visitor experience. These developments in turn created opportunities for different leisure categories.
2020
Looking at the full year, the leisure vacancy rate increased by 1.5%, bringing it to 10.7%. 2020 marks the first time ever this figure has been in double digits.
Looking at the early stages of the pandemic, of the leisure categories that were able to reopen in some capacity in July 2020 (e.g. restaurants offering takeaway and delivery), 52% did. Takeaways were one of the more resilient subcategories early on in the pandemic, as they could lean on their already-established delivery capabilities for revenue. However, independent food businesses proved more agile than multiples, being quicker and more flexible to move online and adapt their offer. One example of this was within Italian restaurants, where 37% of independents reopened, but only 3% of multiples did.
Chain coffee shops, more often based in cities, were among the bottom 10 for reopenings, having been severely impacted by lockdowns and the resulting changes in consumer behaviour. Independents in this sector did not fare much better, with 50% reopened. Some businesses were slow to reopen, not just because of the difficulty of adapting, but also because of reduced demand from consumers, many of whom turned to home cooking or were more conservative in their spending due to the economic uncertainty of the period.
By the end of 2020, the categories with the highest numbers of closures were pubs (-833), Italian restaurants (-309), takeaway food shops (-245) and American restaurants (-130). By contrast, the fastest-growing categories in the year included pizza takeaways and fast food.
And at the time, we estimated that for the coming year we would see further declines in vacancy rates as the after-effects took hold, though likely at a slower rate of 0.3% in the second half of 2021 to end 2021 at a vacancy rate of 11.4%.
2021
The leisure sector rebounded strongly in 2021: the leisure vacancy rate dropped from 11.3% to 11.0% in the space of just six months, the largest decrease in this figure since records began in H1 2013. Activity was boosted by the return of office workers in September 2021 and a sunny summer of sport, including England’s long run in the Euros, which drove visitors back to pubs and hospitality venues.
Big cities, however, continued to see a lack of international visitors, and hotels, restaurants and entertainment venues still experienced lower levels of footfall.
The top 10 fastest-growing categories over the year includes fast food takeaways, cafés & tearooms, bars, restaurant & bar concepts and pizza takeaways. The most prolific of these was cafés & tearooms, which recovered from a net decline of -2 units in 2020 to a net increase of 234 in 2021. Closures of chain coffee shops reduced saturation in some prime locations, creating opportunities for new cafés. These businesses were also supported by being able to trade during the 2021 lockdown.
2022: where are we now?
Looking at 2022 and the lasting effects of the pandemic, the key message is that there is still difficulty ahead. With the rising cost of living, supply chain issues and staff shortages (which have also affected retail), there are numerous elements to tackle, although there are some positive shoots.
As a result of retail parks having reviewed their retail mix over the course of the last two and a half years, the number of retail park leisure units in GB rose from 2,528 in May 2019 to 3,014 in May 2022, a growth of 19%.
International fast food operators such as Taco Bell, Five Guys, Wendy’s and Tim Hortons have all expanded their presence in the UK to make the most of continuing growth in this sector. However, the casual dining sector in particular must remain mindful of lessons from the past to avoid the oversaturation and resulting closures seen in 2019.
Compared to retail, leisure spend is expected to be more resilient this year, with consumers more likely to spend on experiences and social outings than clothing or big-ticket items. The cost of living crisis and disruptions at airports are likely to boost staycations despite international travel now largely unrestricted. Inbound tourism is also set to bounce back with full attendance at events including the Platinum Jubilee, Commonwealth Games, Wimbledon, Glastonbury and the British Grand Prix providing a sizeable boost to leisure.
We spoke to Ryan de Oliveira, co-founder of speciality coffee shop The Attendant, who commented that the lack of stability in the industry has made it difficult to plan ahead. Rising costs and inflation are being passed onto the consumer in the form of higher prices, and this is unlikely to change in the near future. Although the hospitality industry is one of the UK’s largest employers, many leisure operators feel that government initiatives have been insufficient to support recovery and address recruitment issues compounded by Brexit. The VAT increase from 12.5% to 20% has also come into effect for the hospitality sector, putting further strain on businesses at a time where many still need to recover. According to Ryan de Oliveira, the focus remains on being as lean as possible.
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