The race for operators to spread out of London and the south-east is well and truly on. Hands tied by a lack of supply in the capital and up against rising prices and premiums and encouraged by backers to expand at a greater rate, operators are looking at the UK’s other major cities to solve their roll-out targets. However, does that run the risk of regional property bubbles being formed during the next 12 to 18 months?
Tracey Mills, director at Davis Coffer Lyons, said: “The operators moving out to the regions have developed their business models in London and it is, therefore, understandable they are only targeting major metropolitan cities like Manchester, Liverpool and Leeds and major out-of-town schemes like Meadowhall, which provide similar trading environments to the capital. They understand how cities can be changed when major investment is put into new schemes and developments, which can completely change the emphasis of existing eating and drinking circuits and drive customer traffic.”
Unsurprisingly, with the addition of the BBC headquarters and new investment in development, Manchester’s high street restaurant and leisure market is becoming ‘white hot’ and even with the advent of new space at Corn Exchange and Spinningfields, there is a fear that demand is outstripping supply.
The city has become a port of call for London-based operators. Hawksmoor, Iberica and Burger & Lobster have confirmed they will open in the city, and are to be followed by MeatLiquor, Busaba Eathai, Wahaca and Pho. Leisure rents have been pushed up to c£40 per sq ft. This is expected to reach £50 by the year end.
Mills said: “With sites in Greater London being fiercely fought over, operators looking to expand need to get themselves comfortable with new trading environments and locations. And, those groups with private-equity backing are keen to see the scalability of the trading format by taking them nationwide. This expansion will underpin and drive up prices as operators compete for sites, however, unlike London – where they can look more off-pitch – it will be localised to the best positioned and most desirable sites.”
And it is not just traditional cities that are running the risk of seeing rents pushed up. I understand a site in Plymouth has just been secured by a national restaurant operator for £30 per sq ft, triple the figure existing operators in surrounding units are paying.
There is a risk, although small at present due to the growing demand for new eating-out experiences, that the current UK restaurant market could follow the path of the late-night bar market of the late 1990s, often described as the ‘me too’ years. Here swathes of operators followed each other to take up space on high streets, the market was eventually oversaturated and demand dropped away, leaving empty units and businesses in trouble.
It would be a shame if the restaurant sector, which has done so much to help revive the UK high street, became the reason for another period of decline.
All eyes on Osmond
With Hugh Osmond closing in on c40 Strada sites from Tragus in a deal valued at c£40m, the next question is what plans does the man who founded Punch Taverns and floated PizzaExpress have in store for a brand that has fallen from former glories?
It is thought his Sun Capital Partners vehicle held off competition from former business partner Luke Johnson (through his investment vehicle Risk Capital Partners) and Primary Capital (the ex-backer of YO! Sushi) to secure the rump of the brand’s estate.
Osmond will be dealing with a top-heavy estate. Fifteen sites are producing average EBITDA of £400,000 and above, with top performers such as Royal Festival Hall and More London generating full-year net sales of c£3.8m and £3.3m respectively. It is thought the two sites could make up to 40% of the profits.
Last September, Osmond said he planned to invest in the leisure sector in 2014. That point is set to be tested by Strada, which will need investment to bring its estate up to standard. He will also want to make a signal change for the brand and, although he is likely to keep the name, I wouldn’t be surprised if his new version came with a twist: Strada Italian Kitchen anyone?
