Restaurants are the new rock and roll

Growth of UK F&B Market

Helene Mills, Director, Strategy & Consumer, was recently featured in Estates Gazette, sharing her expertise on F&B:

Consumer demand for eating out in London means extra helpings of restaurants with the latest Hardens guide recording 200 new openings in 2016, compared to 176 the previous year. Yet with so many operators vying for position in a climate of mounting cost pressures, it’s not an easy market.

Leading consumer demand are the millennials who love eating out, it seems, as is the growing number of tourists spurred to the capital by the weak pound.

“The bubble has simply got bigger with new concepts continuing to look for sites and investors backing growth,” says Weir.

The sheer weight of operators looking to exploit the foodie revolution has led to soaring rents and tasty premiums. In Mayfair, Richard Caring’s Sexy Fish restaurant set a new rental benchmark last year by paying around £200 per sq ft for the former NatWest bank building on Berkeley Square.

“Outside prime pitches, premiums may be starting to plateau, but you’d be mad to say the market has peaked,” says Josh Leon, Colliers’ head of central London restaurants. “The West End, Mayfair and Soho are still seeing rental growth and we recently sold The Square unit off Bond Street for a premium of £4m. Consumers and investors are spending more money than ever.”

There is also a greater appetite from London’s most prominent landlords who see the draw of having a quality restaurant in a mixed-use scheme. Be it Grosvenor in Mayfair, Shaftesbury at Seven Dials, or Argent at King’s Cross, key estates are all seeking the next big restaurant concept.

“The likes of Land Securities at Nova are letting restaurants before the upper parts of buildings and spend a lot of time getting the right tenant line up,” says David Bannister, director at agent Nash Bond. “There’s a real focus on place-making and driving footfall through a point of difference.”

Such is the power of a good restaurant, landlords are increasingly willing to sacrifice rental and covenants to secure the most appealing restaurants, which opens up opportunities for new entrants.

Shaftesbury has 260 restaurant, café and bar tenants. Portfolio and group restaurant strategy executive Julia Wilkinson says: “Curation is key to what we do. The right restaurants can help keep our areas in the spotlight and get people talking.

“We look to work with creative independents rather than brands because that is the most interesting part of the market. A lot of landlords are moving away from the same checklist of chains. They are willing to take more risks and that opens up some great opportunities for restaurateurs.”

And yet, Hardens’ figures also tell a different story. As the number of new entrants is rising, so too is the competition for customers: some 76 restaurants closed in London last year, which is more than a third up on the figure for 2015.

“I certainly wouldn’t want to be opening a London restaurant at the moment,” says Camilla Topham, director at Davis Coffer Lyons. “It’s hugely competitive and consumers are becoming ever more discerning and disloyal.”

Operators who have overstretched themselves or failed to keep up with the zeitgeist are suffering. Some major brands have felt the squeeze in the last few months as they find they can no longer rely on the same old formula.

The likes of Jamie’s Italian and Frankie & Benny’s have announced restaurant closures, and more household names are tipped to follow.

“It’s all well and good being today’s hottest new concept, but you have to maintain it and many big brands have struggled to remain relevant,” says Mark Calder, director in central London leisure agency at BNP Paribas Real Estate. As consumers continue to search for authenticity and innovation, brands can no longer afford to rest on their laurels.

JLL restaurant and leisure group director Michael Webb agrees: “Those brands which haven’t evolved will face big problems, especially those who paid big rents and premiums assuming that as long as they were in London they were bound to succeed.”

Restaurants are facing huge cost pressures. “Securing sites is proving a real challenge fuelling significant rental growth,” says Calder. “Two years ago, it might have cost you £80 to £90 per sq ft for a restaurant in Soho, and now you’re looking at around £120 per sq ft.”

Add to that rising business rates, the minimum wage, food price inflation and the ongoing struggle to attract and retain staff.

“It’s cost upon cost and it has to be passed on,” says Simon Chaplin, head of restaurants at Christie & Co. “Unfortunately this comes at a time when consumers are not only demanding better quality but greater value for money. As a consequence, we’re likely to see some operators go to the wall.”

For brands to succeed, they will need to focus on sustainable expansion rather than racing towards global domination. The key will be finding a point of difference, having a story to tell and ensuring the offer is relevant to today’s savvy diner.

With social media playing such a critical role in London’s culinary evolution, every restaurant continually battles to be on trend. As foodies vie with friends to be the first to discover the latest new eatery, operators need the right exposure and an Instagramable offer.

Helene Mills, director at consumer strategy consultancy Pragma, says: “London diners are hungry for innovation. It’s about being attention grabbing and offering something different all the time. You’ve got to constantly refresh your offer because staying relevant is really tough.

“That said, there is still plenty of demand to drive further growth. There are Darwinian forces at play in London’s restaurant market. There are winners and losers but in the end that’s what makes it so exciting.”

Mapping growth

As operators find themselves priced out of prime restaurant pitches, many are speculating on where will emerge as London’s next culinary hot spots.

Mills says: “There will be increased focus by operators to find better value for money and exploit any area of the city which is under penetrated and offers the right demographic.”

As London expands and restaurateurs look to exploit emerging locations, there is increased focus on parts of the city that had previously stayed out of the dining limelight. The likes of Dalston, Southwark and Battersea are attracting a wave of newcomers keen to establish a sustainable cluster.

Many will look to exploit the place-making agenda on major mixed-use developments in areas such as King’s Cross, White City and Victoria, reassured they will be part of new vibrant communities.

For others, attention will focus on overspill locations for overheating A3 pitches, be it Shoreditch stretching out to Clerkenwell, extending the boundaries of Soho north to Fitzrovia, or moving from Covent Garden to The Strand.

The impact of Crossrail is also set to extend the restaurant bubble further east and as the city’s boundaries continue to shift, a myriad of new foodie havens will come to the fore.

“The entrepreneurs, innovators and disrupters are moving beyond the West End into emerging London,” says Cushman & Wakefield’s head of leisure and restaurants Thomas Rose. “Instead of paying £70 to £100 per sq ft in Zone 1, you can be looking at £30 to £45 per sq ft for Zone 3 or the edge of Zone 2.”