Restaurant property prices down 18% during recession-hit 2009

15th January 2010, 10:49am

Average restaurant values across the UK fell by 18% during 2009, according to Christie + Co’s annual Business Outlook report, as the squeeze on consumer spending continued to impact the eating out market.

This figure compares with a fall of almost 15% during 2008. Simon Chaplin, head of Restaurants at Christie + Co, said: "Administrations and promotions have overshadowed the UK's restaurant landscape over the last 12 months, as many operators have concentrated on the latter to escape the former. The raft of deals and promotions will remain with the sector well into this year, with margins set to remain tight.

"Transactional activity, which had slowed in 2008, remained at a low level during this year. The appetite for medium-sized packages remained muted and — until debt and credit markets reopen — there is little likelihood of a return to the M&A activity, which characterised the restaurant sector pre-2007.

"Demand for prime sites in key locations, such as London, Manchester and Birmingham has remained strong. However, the lack of funding for new developments has also curtailed the number of deals and expansion in the sector."

With the majority of national operators focusing on paying down debt, raising new funds and streamlining their operations, a buying vacuum was left in the regional markets into which established local operators have started to move.

The lack of competition for high street sites is allowing for modest expansion in regional areas and in some cases nationally.

Emerging operators such as Jamie's Italian and Cote have been able to grow their estates and place their brands firmly in the minds of consumers, giving them a base to expand even further over the next few years.

Christie + Co believes that we could see a range of smaller operators with similar offers both regionally and nationally start to explore mergers this year, in order to create economies of scale.

It also expects operators to place further emphasis on healthier menu options, in line with the Food Standard Agency's consultation process regarding calorie labelling on menus.

Chaplin continued: "Whilst the continued lack of private equity activity, which dominated deal activity in the sector pre-credit crunch, will hamper the chances of further consolidation, a stronger economic recovery in the latter half of the year might encourage a number of deals and IPOs, which were planned or rumoured at the end of 2007, to come on the agenda.

"The current mood in the market is one of cautious optimism as we head into a recovery, with like-for-like sales continuing to show resilience and established operators set to return to the market in earnest to seek out opportunities this year. The recent increase in VAT and continued rise in youth unemployment is set to put further pressure on operators.

"Despite this, it is hoped that the steps taken by the majority of operators over the previous 12 months and the continued emergence of new concepts and entrepreneurs will enable the sector and transactional activity to remain resilient in the year ahead."

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