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The Changing Face of the UK's Nightlife: Navigating the Post-Pandemic Landscape

Published : 30/07/2024 by Callum Roxburgh

Have you been out to a nightclub or late night bar recently? In years gone by the answer to this would likely have been age dependent, however we could be heading in the direction of the answer being a unanimous 'no'.

The hospitality sector has gone through a restructuring phase following the pandemic, with the landscape for food and beverage outlets having changed significantly - the number of licensed premises across the UK is now estimated to be below 100,000, a stark decline of approximately 16,000 since March 2020. The industry has been grappling with multifaceted challenges, including a consumer cost of living crisis, inflationary pressures, and staffing difficulties. Late-night venues such as nightclubs and bars have borne the brunt of these adversities.

For operators to thrive, innovation is essential. Changing consumer preferences, especially among younger adults who research shows are less inclined to drink alcohol compared to previous generations, are reshaping demand. This demographic is also contending with the cost-of-living crisis, illustrated by the increasing number of students in paid employment, which has contributed to the decline of nightclubs and late-night bars. Today, consumers young and old are spoilt for choice, with experiential venues like Flight Club, Sixes and Electric Shuffle gaining popularity alongside a variety of new food options and pop-up events. For many, going for an overpriced drink in a late night bar or huge nightclub doesn’t have quite the same appeal now there is more competition.

Despite these challenges, the sector as a whole is not facing an irreversible decline. Historical trends indicate that expenditure on 'value for money' leisure activities, like pub visits, generally remains resilient during economic downturns. Pubs that offer food service have particularly found favour as consumers seek cost-effective alternatives to higher-priced options. Encouragingly, some of the headwinds are showing signs of easing, with dampening inflation and reducing staffing vacancies. Moreover, the sector is anticipating a potential overhaul of the business rates system from the expected new government which should feed through to improved margins. Operators are not out of the woods yet however, as wider macroeconomic concerns will persist for some time.

So how does asset pricing account for this sector restructuring and changing consumer preferences? On the investor side, there has been a 'wait and see' approach due to the recent unpredictable times. However, it is becoming clear that there may not be further external improvements to drive up values by merely waiting, and we should see yields sharpen later in the year – albeit they didn’t soften a great deal for the most desirable assets anyway. Whilst operators may firmly still be in the “survive to ‘25” mindset, some well funded and aspirational operators are now able to assess expansion opportunities based on future business plans, which are underpinned by solid historical performance. Although borrowing costs have risen, credit remains accessible, and with a stabilisation in trading and market conditions, there is now a realistic chance for forecasting accuracy. This should encourage competitive bidding for desirable assets which come to market.

While the UK's food and beverage real estate assets have endured a challenging phase, the sector is not doomed. The ability to adapt to consumer preferences, coupled with easing economic pressures and potential regulatory reforms, bodes well for the industry. The focus for operators and investors now shifts to leveraging innovation, assessing viable business plans, and capitalising on the current market stability to navigate the road ahead.