What does Brexit mean for the hotel and leisure sector?    

24/06/16

After apocalyptic thunderstorms on the morning of the referendum, many woke up on Friday to glorious sunshine - well, at least 52 per cent of the country did.

The UK economy is braced for more years of uncertainty following the Brexit result. Some short-term pain is likely in the leisure and hospitality sector as consumers cut spending in the face of potential falls in house prices and uncertainty about the economic outlook. This may hit food and drink operators, but hotel and leisure operators could experience an exchange rate-fuelled boon as holidaymakers from overseas take advantage of the increased spending power afforded by a weaker sterling.

With so much uncertainty about the terms of the UK’s exit from the EU, demand-side trends over the longer-term are more difficult to predict. A prolonged economic slowdown or increased personal or indirect taxes would hit discretionary spend and result in a tougher trading environment for operators across hotels, travel, restaurants, bars and gyms. Exiteers argue that release from the shackles of EU red tape would benefit the UK economy as a whole. Only time will tell.

Changes to rules on migration and its impact on the employment environment represent the biggest operational risk factor over the longer term. Any arbitrary immigration cap is likely to impact more heavily on transient migrant workers, who are often the life blood of front and back-of-house in many hospitality sectors. Although this could provide opportunities for UK workers, any potential drain of specialist skills and talent from outside the UK would certainly have a detrimental effect on operators across the sector.

The investment environment is also likely to be impacted, particularly in private equity. If global institutional investors decide to steer clear of UK funds, the supply of new money will be reduced and may cause some funds to enter run- off mode, reducing new investment and further stifling M&A activity in the sector. The appetite for new public share issues is also likely to diminish in the short term.

However, uncertainty is nothing new. The UK is a genuine world leader in leisure and hospitality, and operators in this sector have consistently proven themselves adaptable, agile and resilient in the face of change. Because of this, our long-term outlook for the sector remains bright.

If you would like to discuss how Brexit could affect your business, please contact Paul Newman.