It is a subject that industry observers may well be contemplating now that the sector is at the end of its long journey out of lockdown, and is once more trading (virtually) freely again.
Given the diverse nature of hospitality, it is a question for which there is no straightforward answer, and not least because the impact of coronavirus has varied greatly depending on which aspect of the industry one is talking about, be it “wet-led” pubs, family-focused restaurants or hotels.
Indeed, it was only on Monday, with the move beyond level zero, that nightclubs were free to open again – nearly 17 months after being forced to shutter under the first UK-wide lockdown. There are few sectors that have been hit as severely by the pandemic.
Looking at the mainstream of the hospitality sector – at bars, restaurants and hotels – it could be argued that it is a good time for prospective buyers to move into the industry or for existing operators to expand their portfolios.
Indeed, it might be thought that it is an ideal time to pick up a bargain or two.
The brutal experience of the pandemic will have led many business owners to exit or seek to leave the industry. Long periods of enforced inactivity brought by lockdowns will have led many operators to take on more debt, which will saddle their businesses for years to come.
The restrictions arising from the pandemic will also have exacted an emotional toll: month after month of not knowing what the future holds and worrying about how the bills are going to be paid has been a heavy burden to carry.
After such a draining experience, it is not surprising to hear that even seasoned operators are seeking to exit the industry.
Against that backdrop, opportunities have cropped up for people to take on premises across the sector, and according to Alan Creevy, a veteran licensed property specialist, they are quickly being snapped up. Mr Creevy said the market has been surprisingly buoyant in recent months, and it is partly because licensed operators have been cushioned by financial support measures such as the temporary reduction in value added tax and relief from business rates.
“The government support has worked, [and] the market is extremely active,” Mr Creevy told The Herald.
“We are generally doing letting rather than sales, and we’re running out of supply in the letting market. There is just not enough stock. Every single thing you put on the market goes quicker than it did pre-Covid.
“There is not one market; there is a bunch of different markets. But the one market that is hurting, and will probably hurt for a long time is the large city centre hotel sector and the branded sector in particular, because they relied on business travel and overseas tourism. Both of these things just don’t exist. Business travel may be reduced for a long time.”
Mr Creevy added: “There has also been a big increase in supply in Glasgow in new bedrooms, so the large hotel sector is definitely going to stay down for quite a period of time.”
The travails of the hotel sector were underlined by Rob Seabrook, head of hotel transactions at property agent Cushman & Wakefield, who said the market for buying and selling properties was currently locked in a “stalemate”.
“From a transaction perspective, it has been a bit of a rocky road,” he told The Herald, explaining that the market had been weighed down by Brexit uncertainty before Covid struck. “We’ve had a tough two and a half years.”
He noted that, while the UK staycation market was currently in good health, city centre hotels which traditionally rely on conferences and business travel are “struggling”, with little sign of those core markets returning strongly. Compounding those challenges is the fact that there is an over-supply of hotels in markets such as Glasgow, Edinburgh and Aberdeen.
However, even though such hotels are finding life difficult, Mr Seabrook said there is “very little activity” when it comes to buying and selling, observing that there are “not a lot of forced sellers”.
“What the government has tried to do is protect the businesses, and the banks aren’t putting pressure on. The refinancing situations that might have occurred have been pushed down the road,” he said.
“I am not seeing many banks taking aggressive action with regard to defaults on their terms, because pretty much every hotel that has got bank debt will be in breach for one reason or another, either on interest cover or valuation.”
Mr Seabrook added: “They [banks] do not want to be the grim reaper that comes in there and to be honest, if they do go in there and force a sale, there are not many people out there to buy, unless there is a significant discount.
“A lot of the buyers that have historically been active in that market are struggling with their own assets. So we have got a bit of a stalemate at the moment.”
While the hotel sector struggles, many high street food and beverage outlets are thriving again.
Operators have been taking advantage of pent-up demand from consumers who have been keen to get out again after months of lockdown, while simultaneously benefiting from lower VAT and a business rates holiday. “They (operators) are coming out of this very well, and that is read through the market of transactions,” Mr Creevy said.
“It is totally the opposite of what I thought.”
One interesting dynamic has been the high demand for leases, versus freeholds.
Mr Creevy’s firm, CDLH, which he runs with Peter Darroch, has brokered a number of lease deals in Glasgow in recent months. It worked on the transaction that will see the operators of renowned Chinese restaurant Ho Wong return to Glasgow, and sold the lease for the former Gusto venue on the city’s Bothwell Street, which will be turned into a New York-inspired dining concept. It also acted for the fast-growing Monterey Jacks chain in a deal which saw it move into Glasgow Fort.
Mr Creevy said activity is currently being dominated by the leasing market, with fewer freehold deals being done.
It would seem banks’ appetite for lending to acquire property in the industry remains weak – continuing a trend that has been evident since the aftermath of the financial crisis more than a decade ago.
“Banking has a real aversion to lending to the sector, because it has been over-exposed,” Mr Creevy said.
“It is more difficult than ever to get loans against hospitality assets just now. There are fewer suppliers and lending rates, in comparison to interest rates, are high. That is holding back the freehold market, but the leasehold market is extremely active.”
Of course, the government support currently propping up the industry is temporary. What will happen to the market when that backing is withdrawn, as is now beginning to occur with the easing of furlough support? Will there be enough demand from consumers to offset the rising cost of wages, VAT and, eventually, business rates when they are imposed once again?
How will all this shake down for those in the business buying and selling property?
It is impossible to tell at this stage, but what is encouraging is that deal activity continues apace in the meantime.
In a recent boost for the Aberdeen licensed trade, The McGinty’s Group took over Under The Hammer, pledging to “bring life back” to the city institution after it closed amid coronavirus restrictions. In Edinburgh, The Bon Vivant Group recently opened the third outlet in its El Cartel Mexican street food chain, while a host of new venues have opened in the new St James Quarter.
Activity such as this perhaps signals hope within the industry that brighter times may finally be lying ahead.