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Hospitality not out of the woods yet
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Hospitality not out of the woods yet
Our research indicates that there has been a 65% rise in the write-offs of loans to restaurants and hotels during the pandemic, with £99 million written off by banks and other lenders in 2020/21*, this is up from £60 million in the previous year.
In addition, write-offs in lending to the leisure sector are starting to rise again as Covid pressure begins to bite for industries hit hard by the financial strain of successive lockdowns. Banks that had been attempting to collect unpaid loan repayments from struggling businesses in the sector are now increasingly writing them off as bad debts.
The pandemic impact
We have noted that as government support starts to wind down, we are beginning to see the true impact of the pandemic on the leisure and hospitality industry.
The costs associated with the ramping up for reopenings, such as restocking, equipment maintenance, deep cleaning, and new recruits have been an added burden for struggling hospitality companies, already paying rent for restaurant, bar, and hotel sites despite the repeated shutdowns of venues, and this has simply been too much for many businesses.
Post pandemic
The furlough scheme, which paid 80% of employee wages was a lifeline for many businesses, but now difficulties recruiting staff to work in the leisure sector and requirements for social distancing have impacted businesses’ ability to operate at pre-pandemic levels.
For troubled hospitality businesses, the end of the moratorium on winding up petitions on 30 September 2021 and the end of the suspension on landlord action for rent arrears in March 2022 will cause even further difficulties, and likely trigger a sharply increased number of insolvencies in the sector.
We believe that we have yet to see the full extent of the pandemic’s financial impact on hotels and restaurants. However, the data is starting to show more signs of stress in the sector.
Businesses that are just keeping their head above water are likely to be taken under by the end of government support schemes, the repeated cost of reopening and restocking, difficulty recruiting staff, and lower occupancy or covers due to people’s changing habits or working patterns. Even those businesses that have benefitted from UK tourism this summer may still find themselves looking for support after the holiday season ends.
*Year ended March 2021
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