Leisure and hospitality
Leisure and hospitality are still expected to be among the worst hit sectors, given the uncertainty surrounding lockdowns and social-distancing measures.
Breweries and catering businesses are some of the most at-risk, given the closure of pubs and restaurants, and the cancellation of large-scale events. Many have sought to diversify and or offer take-away opportunities, but even this has been restricted so as to exclude alcohol under the current lockdown regulations.
Furthermore, the use of deposits to fund working capital will be of particular concern in some businesses, such as concert and wedding venues, if they are unable to fulfil their obligation or return money to customers who are unable, or no longer wish, to proceed.
The hotel sector has seen a divergence in performance in 2020 with key rural and coastal locations like the Lake District and Bournemouth seeing a boost in occupancy rates in the summer as consumers opted for UK holidays. However, city centre locations, which heavily rely on international and business travel, have understandably been adversely affected.
Managing operating costs in a low revenue environment and availability of capital were two of the biggest challenges for hotels in 2020. In H1 2021, these challenges will remain for many operators, particularly those with hotels that were under-invested or were underperforming before the start of the COVID-19 pandemic.
We expect the recovery in the sector to be driven by the vaccine roll out, which will improve consumer confidence and lead to an increase in domestic leisure staycation demand in Q2 and Q3. We anticipate international and business demand will remain subdued for most of 2021.
Despite being one of the worst hit sectors, the UK remains a popular market for hotel investors. We expect the level of M&A activity to increase once more distress emerges in the sector after the government eases its COVID-19 support measures.
Care homes are undoubtedly feeling the strain, and many are struggling to secure new residents.
Due to the sector taking advantage of government initiatives during the current economic situation, the delta between accounting profits in management accounts and the underlying sustainable earnings has never been greater. At a time when respite care, which tends to be a temporary placement, occupancy numbers are up and permanent occupancy is down 5-10%, the focus needs to be increasing permanent occupancy. This is proving difficult as homes with a high proportion of private residents are struggling due to an increasing reluctance to place relatives in homes. Restrictions are still in place across the country to protect vulnerable residents, and with people unable to visit family in homes, many are looking at other care options.
FY20 Q4 graphical analysis
Insolvencies by region
The below graphs show the spread of UK insolvencies by region. As evidenced, Greater London has seen the largest number of insolvencies (2,449) with Wales (124) and Northern Ireland (149) at the lower end of the scale. The graphs show that insolvencies are not centralised in one area, but rather are spread across the UK, as would be expected, given the widespread impact of the coronavirus situation.
Insolvencies by sector
The graphs below show the highest rate of insolvency was in the professional, scientific, and technical sector (1,419) with the arts, entertainment and recreation (152) sector at the lower end of the scale. As mentioned above, it is expected that those industries most affected by coronavirus will be those dependent on social and leisure activities. This looks set to continue into 2021, with lockdown measures still in place.