The restaurant sector has been “fundamentally reshaped” by the pandemic, with a demand for convenience, consistency and value now more important than ever.

That’s the headline from Christie & Co’s Business Outlook 2023, which also forecasts there will be an uptick in pub sector transactions in 2023, once market conditions improve and stability returns, following “relentless economic and operational headwinds” in 2022.

The report describes how delivery, quick service restaurants (QSR) franchising and drive through have been able to “forge ahead and see growth” in 2022 despite the challenging trading conditions.

There is still an appetite for well-priced restaurant sites – though the transactional market is largely subdued due to declining consumer sentiment.

Despite the headwinds, freehold restaurant sales are holding up well, showing a 30% increase in transactional volumes, with prices achieved within 10% of the final asking price.

Some 85% of transactions are cash funded amid nerves over lending, causing offer levels to drop and meaning leasehold restaurant transactions with a premium in 2022 was at an all-time low.

Distressed transactions remain at low levels due to the fact that, with no value to be gained, many keys went back to landlords.

Looking to the year ahead, Christie & Co’s predicts an increase in new, more cost-effective models and brands.

There will be more CVAs as “tired and over leveraged” businesses feel the heat; and consequently, good property deals as landlords offer concessions and rent deals

The popularity of QSR, franchising and drive through formats are expected to continue.

Simon Chaplin, senior director of pubs, restaurants & franchise at Christie & Co, said: “In a sector which has historically been dominated by leasehold asset sales, it is good to see freehold restaurants make up a large part of the current market. This is driven in part by the work-from-home revolution, whereby customers are now more regularly able to frequent neighbourhood venues in their market town or village, which are more likely to be an owner operated freehold business.

“Where consumers are looking for consistency and value, the franchised brands are taking advantage and this is an area of the transactional market we see developing further in 2023.”

On pubs, Christie reports the sector’s solid headline performance in 2022 helped to retain investor interest and drive transactional activity in the first half of the year.

However the market has become polarised, with strong demand for assets at the premium and value end of the spectrum, and fewer opportunities in the mid-market.

The majority of pub transactions Christie advised on comprised individual asset sales, as the market for pub assets under £500k remains resilient.

The report reveals Christie & Co saw a 4.8% increase in the number of pubs achieving their asking price, demonstrating that values held up reasonably well.

Overall, 87% of pubs sold were purchased for continued use as a pub, illustrating the strength of the market and just 5% were distressed sales, half of which were seen pre-pandemic.

Freehold assets remain most attractive to buyers, although there is still good demand for free-of-tie leasehold sites in prime locations.

On the whole, deal times are protracted and increasing interest rates and difficulty in pricing debt has dampened the M&A market - however the property advisor expects this to pick up in 2023.

Several pub companies, such RedCat, Red Oak and Greene King continue to be acquisitive, having exchanged and completed on several sites.

Looking to the year ahead, Christie & Co predicts an uptick in distressed activity and the return of single assets disposals.

It suggested an increase in M&A activity as operators seek synergy and savings, and the return of opportunistic buyers and private equity.

Individual cash buyers will be on the look-out for affordable pubs, with continuing demand for pubs with accommodation, and coaching inns.

Christie also anticipates an increase in other operating formats such as the franchise model, while managed house numbers are expected to remain static in light of escalating costs pressures.

Stephen Owens, managing director of pubs & restaurants at Christie & Co comments, “2022 started off strong, with a number of pubco buyers actively seeking similar types of quality assets and this demand, alongside a lack of supply, helped keep pricing strong.

“As we moved into the second half of the year and the sentiment amongst buyers and sellers became more cautious due to challenging trading conditions, the market outlook became more ambiguous, although headline trading remained resilient. Subsequently, values continued to hold, and we have kicked off the new year with increasing levels of activity, which should provide some exciting opportunities for buyers.”