High rents force three in four hospitality businesses to consider restructure or insolvency
73% of London-based hospitality and leisure operators are considering a restructure or insolvency as a result of the economic impact of the ongoing pandemic.
Advisory firm Cedar Dean, which surveyed 230 hospitality and leisure businesses with around 2,000 venues across the UK, found that rental obligations are currently the most pressing issue.
86% of London-based hospitality operators believe their existing or new commercial terms with landlords will not be sufficient to see their businesses through the next phase of trading restrictions.
The findings come a day after more than 1,000 pub operators wrote to Chancellor Rishi Sunak, demanding a statutory right to an immediate rent review for all pubs.
With only 39% of London-based hospitality businesses having agreed new terms with the majority of their landlords since the start of the pandemic, the sector braces itself for a wave of insolvencies.
“We are seeing more company voluntary arrangements [CVAs], many of them unnecessary, because there is currently no mechanism for commercial rents to be revised down in the rent review process,” explained David Abramson, CEO of Cedar Dean.
Mexican standoff
Tom Kidd, director and co-founder of Adventure Bar, which runs nine bars around central London, thinks the government should look urgently into reforming the current leasing law.
He argued “there is a strong case” for mutual break clauses, giving both operators and landlords the option of terminating agreements that do not work for both parties without bringing down an entire company.
Commercial tenants are currently protected from the risk of eviction until 31 December, as the government recently extended the commercial eviction ban.
However, Kidd does not think this is enough, predicting that as much as 70% of the industry could be out of business by early next year.
“I don’t think people fully appreciate the magnitude of the fallout that’s still to come. The hospitality sector is locked in a Mexican standoff when it comes to rent renegotiations,” he said.
“Companies are using CVAs to force landlords’ hands,” Kidd continued. “But that’s not good for the taxpayer, whether it’s written taxes or write-downs on pension funds, the general public don’t do well either way.”
Abramson warns the sector should not expect a quick solution, partly because real estate actors are responding too slowly. “Many landlords still need to get their heads out of the sand and recognise that COVID-19 has changed the game for the long term. This isn’t a 6-12 month issue,” he said.
Outrage within the industry
The latest figures come only a week after more than 100 hospitality firms, including JD Wetherspoon and Young’s, wrote to the Prime Minister warning that many businesses will not survive “this bleakest of winters”.
There is huge anger towards the government and a sense that pubs are being both somewhat scapegoated, according to Paul Crossman, chair of the Campaign for Pubs and licensee of three pubs in York.
“Most pubs are very small businesses that have worked very hard and invested heavily in order to be part of the solution to the Covid crisis, but these latest measures have consigned pubs to a nightmarish limbo. Pubs that are normally perfectly viable have been rendered non-viable overnight,” Crossman said.
Mass closures loom
Many publicans are now considering whether to close their pubs and either “mothball” them until after the restrictions end or to close them down permanently as many pubs face rent bills from commercial landlords they can no longer afford, Crossman concluded.
In addition to a review of the current rules around commercial leasing, pub groups have also urged the chancellor to scrap the 10pm curfew and drop VAT rates to 5% in order to avoid mass closures and job losses.
Establishments have warned they are experiencing such a significant slowdown that many face imminent closure and staff redundancies. According to the pub operators, Friday 2 October was “the worst Friday ever” with many pubs reporting a drop in trading figures of up to 70%.