Richard Wassell: ‘A year of extraordinary change’
One of the most exciting things about the retail and restaurant sector is the evolution and revolution, but so many things have changed in the last 12 months.
The adjustments to the Use Classes regulations in September 2020 has led to more cafes, restaurants and gyms opening on high streets, creating much needed variety and activity. However, the impact of Class E on rent reviews and lease renewals is still being determined.
As the demand for online shopping increased, we saw the closure of major department stores. Leaving shopping centres and high street without the traditional ‘anchor’. This left room for more adaptable retailers to take up prime locations, such as smaller privately owned mini department stores and chains such as Zara, Apple and Next. With enticing window displays, persuasive offers and stronger customer relationships. I think this highlights how essential it is for retailers to meet evolving customer demand.
Over 17,000 shops closed in the UK last year, 50% higher than 2021. Sadly, more than a third of the closures last year were independent shops (CRR).
Some restaurant chains, with homogeneous menus, unmotivated staff, and often poor property advice, did not survive the challenges of Covid. But this presented, and continues to provide, attractive opportunities for the soundly financed and ambitious cafe or restaurant operators to take over.
Recruiting new staff continues to be a real challenge for both retailers and restaurants. We have been working very closely with CVUK and gigl, who have identified fantastic people from outside the sector.
The recent changes to Rating Assessments have brought some assistance. We are still assessing our clients’ properties across the UK, but it looks so far that an average of 10% reductions have been introduced. However, there are anomalies. Some properties in areas where rents have dropped by over 20%, have seen assessments go up by 35%. The temporary relief of a discount from April on business rates up to £110,000 per business will also help some of our independent clients.
Rapidly increasing food prices, and the inability to keep or recruit chefs, has meant that a lot of our restaurant clients have adjusted their menus. So smaller meat portions, increased menu prices particularly on side dishes and wines.
We are seeing an acceleration in the veg forward initiatives of recent years, as more and more carnivores accept there are numerous reasons to adjust their diets.
Increased outside seating provided a 20% plus boost to restaurant and bar sales during Covid and so the reductions introduced by some councils have had a dramatic impact.
I fear that the next 6 months are going to see more closures than during Covid, when there was enormous Government support and operators also still had financial reserves. Covid has been followed by Ukraine, a revolving door at Number 10, surging energy increases, staff shortages, a series of strikes, rampant inflation, and other difficulties.
For example, pizza restaurants in the UK are a £3.5 billion business. The price of every ingredient has dramatically increased. The Italian tomato crop was the lowest in 30 years, so the price has doubled. Mozzarella has risen by 25% to 30%. Most of the flour used in UK pizzas came from Ukraine, so the flour cost has now increased by 35%. On top of these increases there are increased staff and energy bills.
Extraordinarily, cooking oil in restaurant kitchens across the UK, now costs more than unleaded petrol.
However, our experience has been that there remains strong demand from both independents and chains for well configured properties in strong locations. We achieved rents more than the previous rents on all the properties that we let last year.
We also have enthusiastic demand from our investment clients to buy retail and restaurant properties, in locations where we know from our market exposure that there is strong and sustained occupier demand.
There are really challenging times ahead. But on the other side of that coin is, I believe, some of the most exciting opportunities in a lifetime for the brave.
Richard Wassell is the founder of twentyretail, a specialist retail and leisure property advisor.