OakNorth shares 'cautious optimism' for pubs

The report revealed in the six months to April this year, the hospitality and leisure sector demonstrated “continued resilience” despite ongoing economic headwinds, rising costs and labour shortages.

However, the data also showed venues had seen a 25% drop in revenue during the final quarter of 2023, attributed in part to disruption from rail strikes, which heavily impacted firms in London.

Though with interest rates expected to be reduced later this year and reported economic growth, the industry could see increased demand from both leisure and corporate guests from June onwards as household finances begin to balance, improving consumer sentiment.

Moreover, with a packed summer of sport ahead, including the Euros, T20 World Cup and the Olympics, pubs in particular are poised to benefit from a boost over the next few months.

Muted demand 

However, over the short term, more muted demand could impact on occupancy levels, the report warned.

OakNorth head of debt finance Ben Barbanel told The Morning Advertiser (MA):​ “This report takes a cautiously optimistic view of what the next six months has in store.

“When it comes to the outlook for pubs specifically, the packed summer of sport, including Euro 2024, the T20 World Cup, and the Olympics, will no doubt give pub landlords a boost to their bottom lines.

“This will come as a welcome respite for those based in the capital in particular, with many having seen their 2023 Q4 / 2024 Q1 revenues impacted by tube and train strikes and protests.”

From an investment perspective, it added sentiment towards the sector was positive, though liquidity had been sluggish as investors continue to face higher borrowing costs, and businesses have to refurbish existing stock to meet energy efficiency and fire standards.

Opportunities to expand 

When it comes to trends, one key movement set out in the report was rising consumer desire for experiential settings.

According to the bank, while the trend surged post-pandemic, it slowed slightly last year due to the cost-of-living-crisis but is now coming back with “a vengeance” as 38% of consumers now want to spend more on experiences now than in 2022.

Though to achieve its full potential, the sector needs to see action to tackle business rates from the Government, no matter who wins the upcoming general election, OakNorth urged.

Barbnel added: “We have several customers in this sector – Heartwood Collection, Red Oak Taverns, the Inn Collection Group, and Zetland Capital who have a portfolio of pubs operated by Portobello Starboard, to name a few.

“They’re all seeing opportunities to expand and acquire new sites, which is a clear demonstration that even though the sector as a whole may be facing numerous challenges, there will always be outliers and businesses that are outperforming their peers – especially if they have the financial firepower to take advantage of opportunities the downturn presents.”