Thanks to Kay Desai, Legal Director at Gowlings WLG for this article.

What did 2021 look like for the sector?

Overall, it was a slow start for the sector in 2021 in large part due to the Covid-19 outbreak and as the year progressed, the emergence of the Omicron variant.

Hospitality

  • The hospitality industry took a £3 billion hit in 2021 against its performance in 2019.
  • Prior to the emergence of the Omicron variant, average sales in the industry recovered to approximately 98% of pre-pandemic levels, however, the average spend per head decreased by 30% in December 2021.
  • The staffing crisis also impacted operator profit levels within the industry: 83% of hospitality of businesses reported difficulties with recruitment. The industry workforce has relied heavily on internationals and this has posed a challenge since the pandemic. The hospitality sector needs to overhaul itself before people will see hospitality jobs as a career option.

Cinema

  • UK cinema enjoyed a successful year in the circumstances, largely due to blockbuster releases including the new James Bond and Spiderman films. Whilst closed due to UK government restrictions, many cinemas took the opportunity to refurbish and upgrade their existing cinema portfolio.
  • The health and fitness industry was particularly badly hit due to the UK government’s Covid-19 restrictions. This included a ban on group classes which continued late into the year. London was particularly badly affected, owing to the increasing number of professionals working from home and opting to gym locally.

What will the sector look like in 2022?

  • Although the UK services sector is approximately 5 – 5.5% below predicted levels, it is thought that 2022 will be the year that consumers return to their regular spending patterns. UK households are sitting on a significant amount of cash reserves, with lockdown restrictions over the last two years contributing to a £250 billion swing in net liquid cash reserves.
  • Although 55% of consumers remain worried about Omicron, 19% of consumers plan to visit venues more often than they did in 2021.

The hospitality sector in 2022

  • Expansion and influx of international brands: 2022 may see the likes of Pizza Pilgrims, The Ivy Collection and Megan’s expanding among many other popular chains. The likes of The Entourage Group, Popeyes and the Major Food Group intend to use London as their test bed before expanding nationally.
  • Ethical and sustainable practices: Landlords and operators have a new, keen interest to keep their estates more sustainable as customers are demanding sustainability and better quality produce. The rise in plant based eating is likely to continue in 2022. An excellent example of this is the successful trial of the McPlant burger. McDonalds have added their plant based burger to its permanent menu.
  • Regional growth: Hybrid working policies have resulted in a re-balance of footfall away from urban centres to neighbourhood areas for the first time. A key example is D&D London, which expanded to Stratford, London with its restaurant Haugen at the Pavillion. This shift provides operators with lower rents, better licenses and more space.
  • Repurposing of space: Immersive entertainment concepts such as Monopoly Lifesized have grown in popularity and there is real cause for optimism that this sector will continue to grow in 2022. Virtual reality experiences and e-sports venues have grown in popularity and it is expected that they will continue to do so.
    • Gravity in the South Side Centre, Wandsworth, London, for example, is a great example of an all-encompassing entertainment venue. Covering 100,000 square foot, Gravity offers e-karting, bowling, street gold, e-sports and shuffleboard and accounts for 30% of footfall in the South Side Centre.

Can we be optimistic about 2022 (and beyond)?

  • Continued growth is expected in the immersive entertainment space, with operators such as Gravity in Wandsworth, London, taking up real estate space previously occupied by high-street retailers. Technology has brought opportunities to the Retail and Leisure industry and has been embraced.
  • City centres will be forced to adapt to the new working from home norm, as new opportunities open up in local neighbourhoods to service the new stay at home office worker.
  • The general outlook is of cautious optimism as the industry re-bounds and adapts following several years of Covid-19 disruption.
  • The source of funding is a question being asked by landlords. Big investment groups are starting to back independent business, which gives credibility to new concepts being brought to the market.
  • Trends to look out for in the next five years include: sustainability, new concepts, investment and cryptocurrency.

Factors affecting the Retail and Leisure sector

  • Inflation: The Government and Treasury are aware that there are ‘pockets of cash’ available which should be spent by businesses. If these reserves are not spent, there is a possibility that the outlook will become bleaker.
  • Localism: this is a success story from the pandemic. Local restaurants and bars were busier as people reacquainted themselves with their local environment. Replicating the independent ‘feel’ in retail parks will be a challenge for the industry.
  • National v small leisure brands: being new does not necessarily mean being better, as tried and tested concepts still have a role to play. Casual dining brands have retreated from the market and smaller players have been embraced as the future of casual dining brands. Since the pandemic, some landlords have taken comfort from going with brands that are well known but both operators and landlords will consider how each was treated during the pandemic and will have this in mind when deciding on locations.