BE NEWS - The Distrkt line – consultancy co-founders on the future of hospitality and leisure

The Distrkt line – consultancy co-founders on the future of hospitality and leisure

The hospitality sector was hit hard by Covid and the tough times are not over yet. But with challenges come opportunities, co-founders Camilla Topham and Michael Webb tell BE News.

You wouldn’t know from the buzz at the Groucho Club in Soho that the nation was in the grips of an economic and political crisis. Most seats at the club are taken and the mood is relaxed, upbeat even, as I join Distrkt co-founders Camilla Topham and Michael Webb to talk about the state of the market and what the future holds.

The pair are their usual effervescent selves. The hospitality and leisure consultancy they founded in 2018 had a pretty good pandemic all things considered, and it has continued to go from strength to strength this year. After taking the highly commended prize at last year’s Property Awards, it was this year named retail, leisure & hotel agency team of the year. This August, the agency was instructed on the restaurant leasing at The Whiteley London near Hyde Park in London by MARK and CC Land. It has also recently been appointed on the iconic Hop Exchange in Borough with Peer Group.

“It’s just been really, really busy,” says Topham. “Most of our stuff is in prime locations anyway, so we had a really good period post pandemic.”

That was then. Since the end of summer when we first chatted, the Queen has died and Liz Truss, the new prime minister she had anointed just two days prior to her death, has unleashed political and economic chaos with a disastrous mini-budget, much of which she was then forced into a humiliating u-turn on.

Cautious outlook

Understandably, the duo are more cautious in their outlook when we catch up mid-October. “Following on from a buoyant summer, we are now starting to see a decline in appetite for expansion from restaurant operators and demand for new sites,” says Topham, adding bluntly: “The result of this has been that many viable and best-in-class businesses are no longer viable.

“The mood of many hospitality operators at present is of concern, with many far more risk averse. We have seen an increase in liquidations over recent weeks and there has been an increased supply of restaurant property on the market.”

Challenging times lie ahead. However, Topham and Webb are confident they will continue to channel the spirit of collaboration fostered with their landlord clients during the pandemic.

“We were very measured with our clients and really gave them full support and focus,” says Webb. “Our reputation has benefited from the service we provided our clients throughout that difficult period. And it works both ways, because we’re hugely appreciative of the support we got from our clients.”

Many operators pivoted to delivery or al fresco business models. The upshot was that while the hospitality sector was hit hard, it was not decimated.

“Everybody thought it would be a total bloodbath and that the restaurant market would just have vacancies rip through the estates,” says Webb. “It was quite a terrifying time for a lot of landlords, and it nudged the operators that were struggling before the pandemic over the edge. But we’re lucky with the landlords we work with. They’re best in class and were supportive of operators, so there was almost this community feel, and there wasn’t a bloodbath. There was a lot of support both ways. Collaboration was key.”

Topham namechecks The Crown Estate, Shaftesbury and Derwent London as among the landlords that raised their games. “When we talked about collaboration before the pandemic, it was about landlords getting more creative with their tenants, but what we actually saw was landlords really getting their hands dirty,” she says. “Our clients were spending all day, every day on the phone with their tenants. The West End suffered enormously. It was a ghost town. There were question marks over its future. We saw our clients working hard to make sure tenants remained, and they did, so I think the big surprise was that there were barely any vacancies.”

When people did start to return in numbers, it was for food and cultural experiences rather than  retail. “Everyone was just craving culture,” says Topham.

Webb adds that while people went out less, they were spending more and picking better places to dine out or drink in. Areas such as Soho bounced back quickly, but even areas in the West End that were slightly off pitch proved resilient.

Charlotte Street was case in point. “That was an area that was hurt quite badly by the pandemic,” says Topham. “Shaftesbury got a few units back on the street. One was a flagship opportunity. It was snapped up by operator, Carousel, which created a cultural hub there; it’s so much more than a restaurant. Lots of different things are happening in that one space. Now Charlotte Street has been given a whole new lease of life.”

Another street that has been transformed is Heddon Street, adds Webb. While three operators failed during lockdown, this gave the landlord the opportunity to rejuvenate the street, which is now one of the best restaurant streets in London, boasting recently opened bar and restaurant outlets The Starman and Casa do Frango.

However, if the pandemic was bad, worse could be yet to come, fears Topham. “It’s going to be a nightmare,” she laughs grimly. “Construction costs are rising, staffing is more expensive, energy costs have gone through the roof.”

Operators and landlords will have to become more creative, she argues, warning that some operators won’t be able to weather the storm. “We think that the lead into Christmas will be fruitful for many operators, and most should trade well. However, the impact on their margins of rising costs will cause many to fail,” she says. “We expect to see an increased number of liquidations in the new year and our prediction is that mid-market fast casual brands will really suffer as consumer spend declines.”

Profit top-ups

Webb adds that some operators are already starting to talk about profit top-ups rather than turnover top-ups. That will inevitably have ramifications for landlords.

Topham adds: “What we saw during the pandemic was a flight to prime and we will probably see that trend emphasized.”

What the pair don’t envisage is any imminent revival of Residency, the pop-up joint venture with restaurant consultants Montana Fogg launched in early 2020, just pre-pandemic. Set up as a solution for landlords with vacant properties, it was a good idea but ahead of its time, believes Topham.

“There was a lack of appetite from landlords to do it,” she admits. “Residency is a model for a bad market really, or for a landlord who wants to place make and is willing to run it as a loss leader themselves.”

Its time may yet come. “Watch this space,” says Webb. In the meantime, Distrkt has taken on several new projects, including the repositioning of the Whiteley shopping centre. It also continues to work with Shaftesbury and while the pair do not know what the ramifications of the merger with Capco will be, they hope it will continue to be business as usual.

The pair also still feel buoyed by their victory at the Property Awards. “It’s elevated us,” says Webb. “It has rubber stamped that we’re more than just a great brand. We’re a serious business.”

Topham adds: “It’s really opened us up to a new audience. It gives us instant credibility.”

The Mancunian is particularly animated about the growth prospects in her home city. “I think Manchester is a really exciting city right now,” she says. “We’ve noticed a huge trend from operators wanting to be there and there are virtually no properties available there, which is just making it even hotter.”

In terms of its specific plans, the agency’s main priority is its existing clients, she says: “We’ll continue to be choosy about what we take on, and it has to be strategic. We always work with a strategy where we can add value. That’s what we enjoy doing.”

Webb interjects: “We aren’t going to spread ourselves too thin. It will very much be Manchester and a few surrounds, as well as London. We might look further afield one day, even to international markets, but not at the moment.”

While most of their business is in these two cities, Distrkt also has an international project, in Dublin, with MARK Capital Management: Grafton Place by Trinity College.

The scheme was designed pre-pandemic with large retailers in mind, but the plan now is to devote the 27,000 sq ft basement to health & fitness and leisure, which is where Distrkt comes in. “There’s such huge demand and such huge tech coverage there with Google and Meta having big headquarters there,” says Webb. “We’re assisting on the strategic aspect.”

Regional potential

Topham sees the regions as offering the greatest growth potential: “It gets to the point in London where space is so in short supply that the regions are where the real growth stream is, like Dublin, Manchester and Birmingham.”

That growth will continue to be organic, a strategy that has stood the business in good stead to date. “We’ve exceeded our expectations,” says Topham. “There was a moment during the pandemic when everyone had got their heads in their hands thinking: what’s going to happen here? But we’ve always said that we will grow organically and sustainably – we’re not going to just grow for growth’s sake.”

That is reflected in the size of the team, which currently numbers just five. It is also selective about the clients it works with. Those clients now include Get Living, which appointed Distrkt on East Village and the Lewisham Gateway development, as well as Borough Market, where it is finishing up on Borough Yards.

As befits a company whose two main principals who have just turned 40, the pair have also been trailblazing on the social media front. Few other agencies were on Instagram before Distrkt. “We have loads of new followers and we try to keep ahead of the curve with that. It just keeps our brand fresh,” says Topham.

“This is one of the things that struck Mike and myself when we started Distrkt; we identified a disconnect. You’re dealing with these amazingly creative people, chefs and restaurant operators, and you need to make them comfortable with you. You want them to trust you. When we set up Distrkt, we said we want to be super accessible and friendly, and not in any way intimidating, and I think we’ve achieved that.”

They look set to achieve plenty more over the next year. Topham expects trends such as competitive socialising to continue to evolve. “Everyone loves it and you’ll just see more and more ideas. It’s not going away.”

Unfortunately, neither is the raft of challenges facing hospitality. UK Hospitality’s calls for a VAT cut and business rates relief have so far fallen on deaf ears. As costs continue to rise, there is likely to be more appetite for fitted restaurant sites, believe Topham and Webb.

The reality is that only the best will survive, says Topham, offering the following advice to landlords: “It is more important than ever to seek good quality, experiential operators for your restaurant sites. We have heard a few people saying this is the ‘end of mediocrity’, which is a phrase I love and accurately describes how the hospitality sector will change over the coming year.”

The end of mediocrity would be one of the few upsides to the current economic chaos. If only the industry did not have to pay such a high price for it.