Thefuture of leisure - Legal & General · what’s next and what’s after that. The evolution is being played out across all types of leisure property, whether that be an out-of-town

The future of leisure

2018 Legal & General Investment Management, Real Assets – The Future of Leisure

For professional investors and their advisers only

By definition, leisure means free time, but is evolving to include socialising, networking, experience and entertainment – are you ready for the future of leisure?

Legal & General Investment Management, Real Assets

ContentsThe future of leisure 2The future of leisure: key messages 5Setting the scene: the UK leisure property market 9Who will be the leisure occupier of the future? 15What will leisure property look like in the future? 39What will be the implication for leisure owners? 43Our conviction themes 47 The long-term future of leisure 50

2018 The Future of Leisure

1

What does “leisure” mean now and how might that change in the future? By definition, leisure is time when one is not working; free time. Statistics tell us we are spending more than ever filling this time with recreational activities as technological advances mean many mundane tasks can be automated away and any lifestyle blog will tell you that it’s no longer spare time but “me time”.

But what actually do we do in our free time, and where and when? Glance down a high street or around a leisure park and you will see a line-up of familiar fascias, which suggests our recreational time is still underpinned by “traditional” activities: bowling, the cinema or a meal in a restaurant. Look harder and you will see evidence of the significant evolution within the sector, where watching a film is now a multi-sensory experience, foods from around the world are available at our fingertips and “contactless” has replaced “please sign here”.

There is a big macro-trend driving this market movement: experience. The leisure sector is attracting one and a half times more discretionary spend than retail and is growing twice as fast1. As sales fall away on the high street, we appear to be investing more in experience and less in possessions. Participation has become the most modern of talking points and an important building block of social capital. And we’re not afraid to pay for it; Generation Ys spend £419.5 million a month on live experiences and events2.

Alongside this our leisure time has evolved from a static, one-stop event to a journey involving multiple touch points; a meal and a visit to the cinema, or a trip to the gym followed by a coffee with friends. This reflects the widening of our social Venn diagram as the groups of people we spend our free time with expands to include not only family and friends, but also colleagues and casual acquaintances. This means our motivation has also changed: leisure time now means to socialise, to network, to experience, to be entertained – to have “me time”.

This expanding definition of leisure is placing greater demands on operators and owners of leisure property, whether that be a refreshed restaurant menu, more adrenaline-filled and competitive gaming environments

or the latest technology to heighten our cinema experience.

Yet leisure operators are rising to meet this challenge. Never before has the leisure occupier base been as diversified and dynamic as it is today. Business plans are orientated towards the future, with an eye on what’s next and what’s after that. The evolution is being played out across all types of leisure property, whether that be an out-of-town park, a scheme in a city centre or a standalone unit. Importantly and refreshingly, it is not just a London story: regional markets are just as vibrant.

This means that the owners of leisure property need to be as responsive and forward-thinking as their occupiers. What space will be required to realise the ambitions of their occupiers? How can the wider physical environment help create a future-proofed location? Where will leisure interact best with other areas of the commercial property market to build the best destination?

Our “Future of Leisure” report aspires to address these issues with a varied toolkit including interviews with some of our core leisure occupiers, insight from leading market agent Savills and a glimpse into the future from consumer visionary The Future Laboratory. The report aspires to answer four key questions:

• How will consumer demand for leisure services evolve?

• Who will be the leisure occupier of the future?

• What will be their physical space requirements?

• What are the implications for owners of leisure property?

1 Source: Deloitte 2 Source: Wagamama & Canvas 8

The future of leisure


2


So, are you ready for the future of leisure?

Let’s go!


The future of leisure: key messages


The leisure occupier

The best operators optimise location, occasion and channel to connect with their customers

Brands look for locations where their vision will work and they can embed their backstory

Concepts will thrive in the right location, but beware of unmarketable ideas or those that don’t translate

The skill of the owner will be in selecting brands that are truly democratic and which are location-specific

There needs to be a reimaging of the owner/occupier relationship, particularly around covenants

Rents must be affordable for all; understanding what is viable now and in the future is a key asset management skill

Efficient occupiers (rent to floorspace) will be a key metric for sustainable income

The biggest risk to future growth will be occupiers unable to find the right location and the right property

The leisure property

Destination is everything! But it needs to be managed

Stock selection criteria should emphasise flexible space, visibility and accessibility – this is what fit-for-purpose means

Reformat spaces for flexibility and make connections through technology

The importance of (re)investing into schemes cannot be understated; short-term pain for long-term gain

Units will have to work harder and become more efficient to remain profitable and sustainable

Don’t overlook infrastructure; use physical architecture to create a sense of place

Consider off-pitch locations or repurpose space to maintain interest

The leisure owner

Occupational knowledge should be the key to investment decisions

Dare to be different! The mid-market is being squeezed across the sector because people are craving the new

Owners should consider dialling down the importance of covenant, instead focusing on concept vs. catchment

Owners will place greater emphasis on curating space AND occupiers; taking best in practice from the retail sector

Leverage off localism and talent spot great local traders; these can be successful anchors alongside big brands

There must always be time for a conversation

The future of leisure: key messages


6

The leisure consumer

Leisure activities are no longer the preserve of special occasions

But the model has changed: consumers of leisure want to be in control – but also entertained

Leisure time is now segmented into a “journey” – of which retail is often a key feature

The best operators are adapting to this, with initiatives such as “pay on entry” or cashless payment systems

This aligns operational models with the big macro trends of experience and personalisation

Owners of leisure property should track both international markets and the changing regional consumer

They must also engage and enthuse local communities to foster civic pride, and repeat visits

Click here for The Future Laboratory Report on page 50

Leisure activities are no longer the preserve of special occasions. The best operators optimise location, occasion and channel to connect with their customers. This means space should be reformatted to be flexible and make connections through technology.


7


Setting the scene: the UK leisure property market


3 Source: Savills. Excludes high street blocks, fragmented town centre ownership and supermarkets

Leisure property in the UK can be found across a wide spectrum of formats and locations and is often included within retail-dominated schemes. The total universe of all assets that included a leisure element was around 6,150 schemes in 2017, amounting to 530 million square foot of gross lettable area. This represents a 21% increase in the number of properties since 20093.

This report focuses on what we consider the “leisure investable universe”; good quality leisure-dominated assets, including in-/out-of-town schemes and standalone leisure units. The defining characteristics of each type of leisure property are detailed in Table 1.

There are four main types of leisure property

Table 1

Type of property CharacteristicsAverage gross

lettable area (sq ft)Average number

of units

Out-of-town leisure park

Cinema-anchored scheme with 2 to 4 restaurant units, a large car park and often some “D2” units eg. a gym, bowling or bingo

115,422 9

In-town leisure scheme

Located within town/city centre. Strip of leisure units or specific scheme. Often cinema anchored

114,663 10

Standalone leisure units

“Big box” leisure eg casino, standalone cinema or bingo hall, perhaps with accompanying restaurant/bar

21,486 2

Leisure scheme with some retail

Hybrid scheme of leisure and retail units dominated by leisure. Can be located in or out-of-town

257,738 37

Source: Savills. Note that hotels, or small schemes where the majority of floorspace is attributed to a hotel, have been excluded in this report

What is the structure of the leisure property market?

The leisure property market is weighted towards smaller schemes, often standalone units (Chart 1). This will typically be a casino or other “big box” leisure operators such as bingo halls or a cinema. The average size of these developments is small; around 20,000 square foot. The distribution of leisure schemes by

number of units and average floorspace is illustrated in Chart 2. There is a clear inverse correlation between number of units and the number of schemes; 88% of the leisure universe is composed of schemes with ten units or fewer.

The UK leisure property market


10

The majority of leisure schemes are small, with just one or two occupiers

Chart 1

Out-of-town leisure park

% of units

In-town leisure schemeStandalone leisure units

3%

Leisure/retail scheme

73%

13%

11%

Source: Savills

Chart 2 500,000

450,000

350,000

250,000

150,000

50,000

00

100

200

300

400

500

600

400,000

300,000

200,000

100,000

Number of schemes (LHS) Average floorspace (RHS)

100+1-2

Schemes (#) Average area(sq ft)

3-5 6-10 11-15 16-20 21-30 31-50 51-100

Source: Savills

Over two thirds of the leisure investable universe is located out-of-town, whether that is on a leisure park, standalone scheme or in a hybrid leisure/retail development (Chart 3). Standalone leisure units are weighted towards out-of-town locations whilst leisure and retail schemes are more likely to be found in urban, town centre locations. 11% of the leisure universe is located in Greater London4. Development of new leisure property has been limited, despite the increase in consumer spending and widening diversity of the occupier base. Much of the growth in leisure units has been outside of the defined investable universe; in shopping centres, on industrial estates or in mixed-use locations such as office schemes.

The large majority of the leisure universe is located out-of-town

Chart 3

Leisureuniverse

Standaloneleisure units

Leisure/retail scheme

In-town Out-of-town

%

0

20

40

60

80

100

77

23

81

19

28

72

Source: Savills

4 Source: Savills


11

Who occupies property within the leisure universe? The occupier base of leisure property can be grouped into the following:

Occupier base of leisure property

Table 2

Characteristics Example fascias

Cinemas Multiplex or boutique, ancillary retail Odeon, Vue, Cineworld

Food & beverage Restaurants, cafes, pubs Nando’s, Pizza Hut, TGI Fridays

Big box/“D2 traditional” Bingo, bowling, casinos, gyms Hollywood Bowl Group, PureGym

Big box/“D2 emerging” Urban golf, trampolining, escape rooms Junkyard Golf, Vertical Rush, Oxygen

Other Ice rinks, arcades Local operators

Source: LGIM Real Assets

The leisure investable universe is dominated by “big box” operators such as cinemas, casinos, bowling alleys and fitness centres on a square footage basis, which can be located comfortably within larger out-of-town schemes (Table 2). But as can be seen in Chart 4, typical “leisure” occupiers can be found across the wider property market. Around 60% of cinemas are located within the leisure investable universe, which means the remaining 40% must be located within “non-leisure” assets – perhaps anchoring a shopping centre5.

Similarly, the majority of restaurants and gyms are located outside specific leisure-type properties, which demonstrates how the sector has become an increasingly integral park of the consumer offer in more retail-centric locations. “Quick food and beverage” such as fast food units and coffee shops are heavily weighted away from typical leisure locations.

“Retailers are very supportive of having leisure operators included within a scheme; they can increase dwell time, footfall and add a sense of vibrancy. Food is particularly important for “selling the dream”.” SIMON RUSSIAN, HEAD OF RETAIL, LGIM REAL ASSETS

“There has been a dramatic shift in owners” attitudes towards leisure operators within retail schemes; they are far more open minded and willing to consider new concepts across a variety of different locations.” KIDZANIA

5 Note this analysis does not cover high street locations, which would also be a significant part of the provision of some leisure-style occupiers, such as cafés and restaurants.


12

Leisure operators can also be found outside of typical leisure schemes

Chart 4

% in leisure investable universe % in wider property universe

Casin

os

Cinem

as

Bowling al

leys

Leisu

re ce

ntres

Bars &

clubs

Bingo h

alls

Ice ri

nksPubs

Health

clubs

Resta

urants

Arcad

es

Fast

food

Coffee s

hops

%

0

20

40

60

80

100

15

85

40

60

41

59

41

59

41

59

45

55

50

50

53

47

57

43

62

38

64

36

80

20

93

7

Source: Savills


13


Who will be the leisure occupier of the future?


The “here and now” Leisure schemes are often anchored by a cinema, which usually contributes the largest proportion of contracted rent. The on going success and longevity of cinemas is one of the great successes of the UK leisure sector. Despite the emergence of structural treats such as cable television, Netflix and other digital-screening platforms, box office revenues have continued to rise year after year. This is due to a relentless focus from operators on improving the viewing experience, introducing innovations such as 3D/4D screens, moveable seats and IMAX technology.

In 2017 UK box office revenue reached over £1.3 billion, a 60% increase over ten years6 (Chart 5). This demonstrates the on going demand for film screenings within a “traditional” cinema environment, despite the apparent rising popularity of digital content. Average annual expenditure on trips to the cinema reached £19.18 per person in 2016, a 52% increase in a decade7.

Flat cinema admissions have been compensated by rising non-ticket expenditure

Chart 5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Box

off

ice

reve

nu

e (£

m) A

dm

ission

s (millio

n)

Gross box office (LHS) Admissions (RHS)

1,400 200

180

160

140

120

100

80

60

40

20

0

1,200

1,000

800

600

400

200

0

Source: Dodona

Cinema visits per person have fallen very slightly from 2.7 per year in 2011 to 2.6 in 2016, but this has been compensated by higher concessional spend as operators better align their retail offer with customer demand. Non-ticket expenditure rose from £350 million to £452 million over the five years to 20168. Other

income from advertising revenue, booking fees, sales of 3D glasses and auditoria rent increased by 36% to £173 million in 2015, illustrating the number of ways operators are diversifying their income streams.

Life on the ground In 2016 there were 766 cinemas in the UK, with a total of 4,046 screens. Around 60% of these cinemas are located within the leisure investable universe, with the remainder being in retail schemes, independent operations or situated in owner-occupied units.

Within the leisure investable universe, the majority of cinemas are located within larger leisure schemes, either in or out-of-town (Chart 6), with only a small minority in standalone sites. Notably, the majority of multiplex cinemas are in leisure-specific assets. This underlines the importance of a leisure-dominated scheme for cinema operators, but also suggests there is potential for others to challenge for market share. This is now being borne out in reality by the boutique cinema market following strong expansion by operators such as Everyman, Curzon and Picturehouse. By 2017 there were 58 boutique schemes in the UK, but only four reside within leisure-specific assets – a sharp contrast to the multiplex market.

Location of cinemas within the leisure universe

Chart 6

Out-of-town leisure park In-town leisure schemeStandalone leisure units Leisure scheme with some retail

11

56

87

69

Source: Savills, Dodonoa

6 Source: Dodonoa7 Source: Dodonoa 8 Source: Dodonoa

Cinemas


16

New multiplex openings

Table 3

Sites Screens

2010 5 46

2011 7 58

2012 4 27

2013 8 64

2014 5 38

2015 16 132

2016 14 96


Development on new multiplexes is cyclical and mirrors wider property market trends, particularly shopping centre construction. New openings have recovered since the Global Financial Crisis (Table 3), but remain below the peak of 284 screens opened in 2001.

The occupier base is highly concentrated: the top-five exhibitors shared a 79% share of gross box office revenues in the UK in 2015, with 69% attributed to the top-three exhibitors. Recent consolidation of multiplex brands and an increase in the boutique offer has resulted in the top three multiplex operators (Odeon/Cineworld/Vue) now operating around 65% of schemes in the UK (Table 4).

The cinema operator base is highly concentrated

Table 4

Sites 2009 Sites 2017 % of screens

Odeon 116 110 26

Cineworld 76 97 28

Vue 68 85 24

Picturehouse 19 24 2

National Amusements 21 21 8

Everyman Media Group 9 20 1

Reel Cinemas 17 15 2

Merlin Cinemas n/a 14 1

Curzon 5 14 1

Empire Cinemas 17 13 4

Omniplex n/a 13 3



17

Implications for owners Vital statistics

• Average cinema floorplates are around 40,000 – 45,000 square foot

• Floorplates are slightly smaller in shopping centres at around 38,000 square foot

• Schemes can range in size from as small as 7,700 square foot up to 120,000 square foot

• The largest schemes are located out-of-town due to cheaper rents

Rents

The importance of cinema rental income to leisure property owners cannot be understated; a cinema can account for over 80% of contracted cashflow on some schemes!9

• Average rents paid by cinema operators on leisure schemes increased from £13 per square foot to over £14.30 in eight years, an annual increase of 1.3% per annum10 (Chart 7). This just outpaces the increase in revenues over the same period

• The cinema rental tone varies by region, and if the cinema is located in- or out-of-town (Chart 8). In 2017, there was a difference of around £3.50 in average rents between in-town (£16.83) vs. out-of-town locations (£13.27)

• There is also significant regional variation: over £13 per square foot between in-/out-of-town schemes in the East Midlands whilst in Wales and the West Midlands cinema rents on leisure parks were higher than their in-town comparables. This dynamic illustrates the extent to which a strong out-of-town can dominate a high street offer (and vice versa)

• The rental range is wider for in-town locations; from £12.76 up to £24.17 in 2017, compared to £10.63 and £15.50 on out-of-town schemes, due to polarisation in performance of town centres across the UK

Cinema rents have risen to over £14 per square foot

Chart 7

£ p

er s

q ft

2010 2011 2012 2013 2014 2015 2016 201712

13

14

15

Source: Savills

There is significant regional variation in rents

Chart 8

£ p

er s

q ft

In-town rent

York

shire

and

Humber

side

North W

est

UK

Scotla

nd

East o

f Englan

d

South W

est

North E

ast

Wale

s

Wes

t Mid

lands

South E

ast

Great

er Lo

ndon

East M

idlan

ds

Out-of-town rent Max 2017 rent

0

5

10

15

20

25

30

35

40

Source: Savills

9 Source: LGIM Real Assets 10 Source: Savills


18

Near-term trendsProperty

Development hierarchy

Focused on three types of cinema:

• Large-screen, technologically advanced formats

• Family-orientated cinemas in smaller catchment areas

• Luxury boutique cinemas aimed at adult consumers

“Cinema operators are improving their retail offer, speeding up service, targeted offers, refining the product mix. This helps create segments within the consumer journey: coffee/film/food.” ODEON

Smaller auditoria

Clear trend towards progressively smaller auditoria. Between 2010 and 2015 the number of cinema screens in the UK rose by 10%, but the increase in seat numbers was less than 1%. Most capital expenditure continues to be focused upon building new multiplexes or modernising existing ones.11

Source: Odeon

Multiplex evolution

IMAX technology already seems mainstream! Operators are now focusing on installing moveable seats and superior audio systems to maximise the viewing experience, with greater investment in seats as it is this that creates the biggest impact for viewers.

“We aspire to create both a destination and experience, with the installation of market-leading reclining seating a key feature. Retail is also being used as part of a wider strategy to both enhance experience and explicitly generate revenue.” ODEON

Source: Odeon

Premium – but no budget

The premium cinema offer continues to mature, driven by boutique operators such as Everyman. Multiplex operators are also broadening their proposition to encompass the burgeoning premium sector: Odeon has launched the “Lounge” brand, whilst Cineworld has introduced “Screening Rooms” to some schemes. However, there is very little evidence of an emerging budget cinema offer.

11 Source: LGIM Real Assets


19

The “here and now” The restaurant sector represents one of the most dynamic areas of the leisure market today. As mirrored in other areas of the consumer services market, the occupier base has segmented into a hierarchy of budget, midmarket and premium offers, alongside a burgeoning “fast casual” or grab-and-go market.

Household spend on eating out is relatively stable

Chart 9

£ p

er h

ou

seh

old

Restaurant spend per household

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Oxford Economics, Pitney Bowes

The amount spent on eating out by households has been relatively consistent at around £2,900 per year, which is expected to continue at this level over the near term (Chart 9). However, these headline numbers are not representative of the on going change in spending patterns. Whilst the absolute amount spent in restaurants and cafes has held fairly static, the number of transactions has risen by around 3% per annum over the past three years as prices fall and visits increase to lower price-point outlets12. Other recent trends include:

• The growth in “casual dining’, which has democratised dining – eating out is no longer a treat

• The globalisation of food offers, with cuisines from around the world

• Brand agnostic customers: one in two restaurant visits made by London consumers are to a new restaurant13

Source: Five Guys

• A polarisation between health-conscious offers vs. “dude/dirty food’

• Expansion of coffee shops against the decline of traditional wet-led pubs as lifestyles change

• The rise of third-party delivery services such as Deliveroo.

Deliveroo has added 11% to takings.

Life on the ground

The number of restaurants has grown by only 0.4% between 2014 and 2016, but this does not reflect the change happening on the ground; notably the demise of many owner-occupied operations against the rise of corporately-owned brands. The increased corporatisation and dominance of the “casual dining” market is reflected in Table 5, which illustrates how some of major restaurant brands in the UK have achieved huge increases in the number of units within the leisure universe since 2009.

Restaurants are an integral part of the leisure universe; as much an anchor on schemes as a cinema and an important reason for why people will visit a leisure destination. In 2017 there were 71 different brands across 945 locations within the leisure universe14. As can be seen in Table 6, the large majority of out-of-town parks and leisure/retail schemes contain at least one restaurant.

12 Source: Global Data 13 Source: CGA 14 Source: Savills

Restaurants

FIVE GUYS


20

Restaurants are an integral component in leisure schemes

Table 5

2009 2017 % change

Pizza Express 346 450 30.1

Nando’s 222 378 70.3

Frankie & Benny’s

172 262 52.3

Prezzo* 125 258 106.4

Pizza Hut 391 242 -38.1

Zizzi 107 144 34.6

Wagamama 64 124 93.8

Bella Italia 83 112 34.9

Carluccio’s* 39 94 141.0

Cote Restaurants

10 87 770.0

Café Rouge 113 85 -24.8

Table 6

% with restaurants

Out-of-town leisure park 85%

In-town leisure scheme 67%

Standalone leisure units 12%

Leisure scheme with some retail

91%

Source: Savills

Recent issues Expansion

Table 5 highlights the large increase in the number of units from some of the main restaurant operators in the UK. Since 2016 the restaurant sector has come under increased scrutiny for the scaling-up of mid-market and fast casual brands across the UK. This created a number of issues:

• Motivation for expansion activity varies. If it is driven by number of units, rather than just profitability, this can lead to a take-up at all odds and “pay whatever it takes” mentality

• This has driven up rents in some high-demand locations to the point that total occupancy costs become unaffordable

• Some businesses becoming loaded with debt to underpin expansion plans

• Cannibalisation of sales as markets become saturated, particularly within the mid-market

• High rents and a lack of tested covenants mean many restaurateurs were unwilling to sub-let

• Ultimately: weaker businesses going into a CVA or administration, or unsupportable “tail end” units closed

• Long leases and City/Town focus movement

In some instances the core business was successful, but brands scaled up too quickly and into the wrong locations and often into the wrong properties. Is it very hard to determine which sites are going to cannibalise others; it is an art not a science. Some catchments can tolerate another fascia, some can’t. The average person on the street doesn’t think about this; they just go out to eat.

*Both Prezzo and Carluccio’s have recently entered Company Voluntary Agreements whereby they have closed a number of their loss making stores.

PIZZA HUT

Restaurant concepts that move out of London need to allow themselves time to mature in regional markets, where there is not necessarily the critical mass of local and transient consumers to visit week after week.


21

Cost headwinds

The restaurant sector has not been immune to the problems in the wider retail market of the many cost headwinds placing downward pressure on operating margins.

Restaurateurs are grappling with a range of cost headwinds

Table 7

Fixed costs Variable costs

Rents: rising around 3% p.a. but higher in high-demand locations

Food prices: rising, as seen in supermarket sector

Business rates: have increased significantly in some locations

Currency: fall in sterling pushed up input prices

Fit-out costs: brand standards and desire for experience hiking up costs

Staff shortages: vacancy rates are highest in the hospitality sectors

Payroll costs: increasing due to statutory rises, pensions, Apprenticeship levy


These can be split into fixed and variable costs (Table 7), which has resulted in specific issues for restaurants:

• Units must make a profit on a standalone basis to be sustainable; even if revenues are rising this may not be enough to offset the increased cost base

• 69% of businesses increased their prices during 201715. When costs rise, the natural instinct is to cut prices, cut portion sizes and cut the hours of staff. This makes the unit even less attractive speeding up the downward spiral

• Third party delivery companies, such as Deliveroo, are viewed as both a help and a hindrance. They can account for 50% of sales in some sites, but at a huge cost to operators

• The greatest immediate concerns for restaurant operators are staff shortages, the increased cost of imports and rising rents16

• There is some variance by size. Operators with smaller portfolios are more concerned with rising material costs and food prices, presumably because they cannot buy at scale. Operators with larger portfolios are concerned with the rise in business rates and the possible impact of terrorism activities

15 Source: Savills 16 Source: CGA

THE RESTAURANT GROUP

Customer numbers haven’t necessarily dropped but due to competition across the country profits have fallen. Our main aim is to increase profits again as turnover remains stable.


22

“At the root of the problem is the fundamental juxtaposition of the commitment required by A3 occupiers vs. the nature of the casual dining market. High fit-out costs and overheads, long paybacks and the low liquidity of assets (in poorer markets) inherently jars with the ever changing demands of consumers.” PIZZA HUT

“Since the Referendum vote around £30 million has been wiped off the bottom line due to exchange rate movements, business rate increases and wage inflation.” CASUAL DINING GROUP

Implications for owners Vital statistics

• The expense of fitting out a restaurant is enormous: up to a million pounds for some of the higher-end London restaurants, but even a mid-market casual dining unit can cost over £500,000 to fit out to brand standards. This puts significant pressure on revenues to justify costs

• Lease lengths have traditionally been long to allow for these costs to be amortised. However, lease lengths are now coming down as owners include longer rent-free periods as market dynamics change

• As consumers and restaurateurs become more social media aware, there is greater awareness of what fixtures and fittings look good in photographs and on websites: better lighting, distinctive features and attractive crockery

“We are looking at the opportunities that exist for Pizza Hut… a smaller, more convenience-driven offering is where we see an opportunity for our brand… it’s also more about “assisted service’, with the focus skewed to speed and price.” PIZZA HUT

We have trialled one smaller format store of 50 – 60 covers.

Rents

Restaurant rents in the UK have risen by around 3% per annum since 2009 (Chart 10)17. For prime pitches, the rental tone has been pushed up by new entrants fighting for space; one of the reasons cited for the current distress in the market. Table 8 illustrates the rental differential by type of scheme, whilst Chart 11 depicts the range of rents by location and region.

Restaurant rents have risen strongly

Chart 10

£ p

er s

q ft

2009 2010 2011 2012 2013 2014 2015 2016 20170

5

10

15

20

25

30

35

40

Source: Savills

In-town rents usually higher than out-of-town

Chart 11

£ p

er s

q ft

In-town rent

York

shire

and

Humber

side

North W

est

Scotla

nd

East o

f Englan

d

South W

est

North E

ast

Wale

s

Wes

t Mid

lands

South E

ast

Great

er Lo

ndon

East M

idlan

ds

Out-of-town rent

0

5

10

15

20

25

30

35

40

Source: Savills

17 Source: Savills

NANDO’S


23

• The average restaurant rent in 2017 was £35 per square foot. Rental growth on leisure schemes has been more modest than in some city centre locations, where there are now regular examples of headlines rents reaching over £50 per square foot

• Those schemes that are more orientated towards retail command higher rents, particularly high-footfall in-town locations where max rents in 2017 easily exceed three figures

• The majority of average rents are higher in-town compared to out-of-town locations. However, there are some notable exceptions in the East of England and the North East restaurant rents are higher out-of-town

• The range of average restaurant rents is highest in-town at £26 per square foot, led by Greater London. The Capital also commands the highest out-of-town restaurant rents, although the range is smaller across parks at just £7 between the most and least expensive regions

Restaurant rents are higher in-town and in retail-dominated locations

Table 8

2017 average

rent

2017 max rent

Shopping centre 38 344

Leisure scheme with some retail 29 50

Retail park 26 61

In-town leisure scheme 26 147

Out-of-town leisure park 23 43

Standalone leisure units 23 37

Source: Savills

Source: Nando’s


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Near-term trends

Property

Dynamic dining

Consumer appetite for experience has translated over into the food market. This has driven the strong growth in food markets (also leveraging off demand for “localism”), dining concepts such as supper clubs and pop up restaurants, and restaurants with a strong “omni-channel” offer i.e., are active on social media platforms.

British Street Food, run by Richard Johnson ex-journalist for the Independent was inspired by the food markets of New York where you can “eat the world”. The company liaises with small-scale, but successful restaurants in London to take temporary sites in regional markets. Strategic use of social media, apps and a website promotes the backstory of each vendor, with particularly successful ventures taking leases in local units. The long-term view is that more brands will transfer between temporary food venues and bricks and mortar units as operational strategies evolve and new markets open up.

“There is no going back for the street food trend. It is part of the British disinvestment from formality to acceptance that we no longer need a knife and fork to eat food.” BRITISH STREET FOOD

Eating experience

Creating a convivial dining experience is incredibly important for restaurateurs, particularly to ensure repeat business. This encompasses a number of factors: the quality of the food, the fit-out and the quality of the service.

Experience can also go beyond service to using food as an educational tool or medium for demonstrations and workshops. This expands your market, changes demand patterns around time of day and diversifies your offer. It also helps foster repeat visits if managed correctly and embeds the restaurant backstory with consumers.

“A new Pay on Entry concept is being trailed across a number of units. Customers want to be in control of their time and experience is increasingly where this market is going – I can’t see any change in this course. This is an important change in the service model, which appeals to customers because they are in charge of the pace of their meal… It works for us because it is more efficient and reduces costs.” PIZZA HUT

“I see a fine balance between “customer control” and “offering an experience” – getting this right is key to the future of casual dining.” PIZZA HUT

Source: Pizza Hut


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The future is efficient

Consumers are demanding a change in the model towards self-service, but it has important implications for operators too. It can save on labour, service times and make a huge difference in underperforming stores (because you are making the customer do the work!). This can help combat cost and payroll inflation. The success of self-service drinks in some concepts suggests this will work in the UK.

An established model in retail, Click & Collect, is increasingly being used by restaurant operators. Click & Collect is an extension of takeaway and online ordering, offering the benefits of delivery (more customers and more revenue), with less operational and margin impact. Taking third party distributors out of the equation means commission chargers are lower; the restaurant can collect data and build on customer relationships. This channel grew by 16% between June 2016 and June 2017 compared to 8.9% for delivery.

“Units are being forced to work harder, such as our new Pay on Entry offer and other P&L savings. Reduction in kitchen size is something that needs to feed through to other restaurant concepts.” PIZZA HUT

“Delivery is only a small part of our business, but we ensure new units are future-proofed by embedding separate entrances and bike parks for delivery drivers so the dining out experience isn’t eroded for other diners.” NANDO’S

“We sometimes take out tables to maximise the customer experience, which can seem counterintuitive but works for us.” NANDO’S

Operations

More administrations

The trading environment of the UK restaurant market is going to continue to be challenging in the near term, particularly for casual dining operators and independent operators with no point of difference. The market has moved on from the 1990s model where location, range and price was enough to underpin a successful business.

Sector growth will be subdued but will not decline; many casual dining operators still have good concepts and pricing, just too many sites.

Whilst CVAs only add further negative sentiment into the market, there are many successful examples e.g., Azzurri (who own Zizzi’s). Problem assets are often removed from portfolios through this process, which can bolster stability and strengthen balance sheets.

“Apollo [backers of Casual Dining Group] fully back the existing core business and want to see continual investment into the existing portfolio.” CASUAL DINING GROUP

“It is the operators who cannot respond and change, or reinvigorate their offering quickly enough that have suffered and will continue to do so. Underpinning this, if brands expand too quickly into unfamiliar territory, taking large units on long-term financial commitments, they are exposing themselves to far greater degree of risk and inflexibility.” PIZZA HUT

Source: Pizza Hut


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Growth hotspots

• There is always going to be a place for chains in the market. Those that get it right with timing, marketing, fit-out, price and offer will continue to be successful

• Smaller, branded groups are anticipated to be the most expansionary; brands such as Turtle Bay, Honest Burger and Franco Manca

• Further expansion of the “grab and go” market, particularly in high street locations where convenience is key

• A resurgence of the pub sector, led by those with strong food offers, strong brands and a distinctive fit out (New World Trade, Living Ventures, Brewhouse and Kitchen etc.)

• Local talent; regional owner-occupiers with a unique or high-quality offer that know their local market. These can often be more nimble than larger operators, making quicker decisions

“We believe there is still plenty of room for growth in the casual dining market. The best operators are aware of the demand ceiling within a micro-location – where if you add just one more restaurant then it will start to cannibalise sales from other units.” NANDO’S

“We are planning another 20 openings in the UK this year.” FIVE GUYS

“We have a very strong country pub business that we are looking to expand and are still acquiring for our core brands.” THE RESTAURANT GROUP

“There is a lot of R&D going into developing meat-free options, which speaks to both the healthy lifestyle and environmental consumers agendas – these options complement the existing core menu. No move away from chicken being planned!” NANDO’S

Source: Nando’s


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The “here and now” The health and fitness market has experienced strong growth in demand. This is illustrated by the number of gym memberships in the UK; having held relatively static at around seven million people from 2007 to 2012, membership rates started to rise sharply from 2013 onwards (Chart 12). This translates to a penetration rate of around 15% for the UK, of which 10% is private club membership18. Between the top ten private operators there are 3.6 million members, an increase of just under 20% on the previous years’ top 1019.

The rise in gym membership and participation in exercise classes has been attributed to:

• Greater levels of disposable income

• Promotion of benefits of healthy lifestyle by public sector bodies

• Increasing variety of clubs and concepts, in convenient locations

• Popularity of low-cost models with 24/7 access

• Greater uptake of premium “lifestyle” offers20

UK gym membership has risen strongly since 2013

Chart 12

Mill

ion

s

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

2

4

6

8

10

12

Source: LeisureDB

The economic recession of 2007-2010 was the catalyst for the polarisation of a number of consumer markets, including health and fitness. Budget operators started to offer low-cost membership with minimal or no joining fees, 24-hour access or drop-in sessions. This format has been scaled up across the country, particularly in high-footfall locations.

Four of the top ten operators in 2017 are a budget format. This compares to only three small-scale operations in 2009. Pure Gym, with 176 sites across the UK, is the top private operator. The total number of budget gyms is expected to pass the 1,000 mark over the next 12 months as their success brings more people into the market.

At the other end of the spectrum is the premium, full-service offer (mostly in London or large city centres). These operators must provide a level of service and experience to justify the high fees, often focusing on just one type of activity such as cycling or yoga. The polarisation has led to a squeezed mid-market, with previously dominant operators such as Fitness First being acquired by DW Fitness alongside the disposal of sites to other operators, whilst Virgin Active has disposed of sites around the country.

Life on the ground In 2017 there were thought to be around 62 gym brands operating across 4,430 locations in the UK, a significant increase from the 33 brands across 1,100 sites recorded in 2009. If smaller, independent units are included this rises to around 6,70021.

In 2009, the sector was dominated by Fitness First with a tail of other brands owning fewer than 70 sites (Table 9). In 2017, the composition of the market has changed dramatically: six of the top ten operators are relatively recent entrants to the market, with the top four operators managing over 100 sites. The top 10 account for just under a quarter of private gyms, but have over half of total membership and generate 60% of market value. This compares to 22% of the market and 56% of market value a year ago, suggesting that the strong are getting stronger and dominating the market22.

18 Source: LeisureDB 19 Source: Savills 20 Source: LGIM Real Assets

21 Source: Savills 22 Source: Savills

Health and fitness


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Gyms on leisure-specific schemes account for only around 8% of the national supply, but are the location for around 20% - 50% of the sites of the top-ten operators. Around half of in and out-of-town leisure specific schemes include a gym or health club, which rises to around two thirds of locations that contain a mix of retail and leisure units (Chart 13). A large number of gyms can also be found on the high street, outside of the leisure investable universe.

The composition of the gym market has changed dramatically in eight years

Table 9

BrandClubs 2009

BrandClubs 2017

Fitness First 153 Pure Gym 176

Virgin Active 69 DW Fitness* 133

LA Fitness 65 Anytime Fitness 111

David Lloyd 64 Nuffield Fitness 111

Bannatyne 54 The Gym Group 91

Esporta 50 David Lloyd 83

Marriott 45 Energie Fitness 74

Livingwell 38 Bannatyne 67

Energie Fitness 23 Virgin Active 61

Total Fitness 18 Xercise4Less 47

*Includes Fitness Firsts acquired by DW Sports but still tradingas Fitness Firsts.

Source: Savills

Gym operators are an important occupier on leisure schemes

Chart 13

% o

f sc

hem

es w

ith

gym

Leisure schemewith some retail

In-town leisurescheme

Out-of-townleisure park

Standaloneleisure units

0

10

20

30

40

50

60

70

Source: Savills

Implications for owners

Vital statistics

• The average size of a gym in the investable universe is around 28,000 square foot

• There are distinct size requirements by location and format of operator (Table 10). Larger clubs are situated out-of-town, ranging from 25,000 square foot up to 40,000 square foot

• Gyms in more urban locations can be a quarter to a tenth of the size, down to just 2,000 square foot on some high streets


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There is a variety of size requirements across the health & fitness market

Table 10

Brands Typical size requirement Location type

Health & fitness clubs David Lloyd/Virgin Active 25-40k sq ftOut-of-town parks, single units

Budget gyms – larger EasyGym/Pure Gym10-18k (but also 6-8k) sq ft

Retail parks, town centres

Budget gyms – smaller Anytime Fitness 4-5k sq ft High streets

Boutique fitness clubs F45/Psycle 2-4k sq ft High streets

Source: Savills

Rent

The rental tone for gym or health clubs within the leisure investable universe has remained static at £10 per square foot since 2009. This is not reflective of trends within the wider market where gym rents increased to £11 – £12 per square foot in 2017 on regional retail schemes. Anecdotally, rents have reached £50 per square foot on prime London high streets for smaller floorplates23.

Near-term trends

Property

Smaller formats

New budget/super-premium brands are expanding but taking smaller units. The focus of the latter is on shorter classes rather than the provision of large gym floors.

(Franchised) fitness for all

The franchise model has allowed operators to scale up quickly. Gym groups continue to expand strongly in the regions; growth has not just been London-centric.

Squeezed mid-market

Budget operators are expected to expand rapidly alongside the boutiques, which means the pressure on the middle market is not going to ease soon.


23 Source: LGIM Real Assets


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Operations

International target

Many of the newer brands opening in the UK are international; Barry’s Bootcamp, Psycle, F45.

There are some commonalities:

• Flexible use: pay-as-you-go model allowing urban consumers to be flexible and avoid annual fees

• Sense of community: positioned not only as places to work out, but hubs to socialise with like-minded people

• Strong lifestyle message: marketed as physically effective and socially desirable

Budget bubble

Low barriers to entry mean that the expansion of budget brands has been rapid. Whilst budget business plans may include strong expansion plans, some locations are now becoming saturated. Areas of the mid and even premium market have already been cannibalised, with budget operators now fighting for the same customers on the same sites.

Price ceiling Whilst super/premium brands have relatively small estates in the UK at the moment, the number of units in the US suggests there is substantial headroom in the UK. The challenge will be to provide an overall quality of experience that is considerably superior to that offered by low-cost rivals (and justifies their fees).


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The “here and now” Falling under the D2 planning use classification, these operators are long-standing legacy occupiers; family-orientated social pastimes such as bowling, bingo and gambling that have a sustained history in British culture. Whilst many thought that the smoking ban would pose a huge threat to these types of operators, the opening of new leisure parks and shopping schemes, extensive capital expenditure on existing schemes and an increased focus on the consumer experience has resulted in many original names still present in the UK today.

Activity pricing is often very competitive, relative to other leisure experiences. However, these activities are often low frequency; almost 70% of consumers have not participated in ten-pin bowling over the past 12 months, compared to 32% for cinemas24. The penetration rates

per head of population are also low, suggesting there could be significant room for growth if operators are able to attract more customers through the door.

“Customers are generally brand agnostic when it comes to bowling, so it’s important that a USP is created with a modern fit-out, investment in team training and additional services. Wifi is also critical.” HOLLYWOOD BOWL GROUP

These types of operators are also an important occupier group within the leisure universe. Whilst the cinema operators and restaurants may attract the headlines and headline rents, Table 11 illustrates how prevalent these operators are across leisure schemes and thus are still important footfall drivers – particularly bowling operators.

24 Source: Hollywood Bowl Group 25 Source: Hollywood Bowl Group

Traditional “big box” leisure

Traditional operators can be found across all types of scheme

Table 11

% schemes with bowling

% schemes with bingo

% schemes with casinos

Out-of-town leisure park 49% 32% 6%

In-town leisure scheme 16% 6% 17%

Standalone leisure units 5% 8% 2%

Leisure scheme with some retail 28% 16% 16%

Source: Savills

Life on the ground BOWLING: ten-pin bowling is estimated to account for less than 1% of leisure market share by value, but grew by 6.7% in 2016 – the fourth consecutive year of growth25. The sector has enjoyed a recent resurgence due to corporate consolidation, significant refurbishment activity and the opening of new schemes. Branded operators such as Hollywood Bowl Group have also focused on greater consumer engagement and re-orientating its proposition towards being a family activity. Ten-pin bowling has also benefited from being a highly-accessible form of family entertainment, with little reliance on alcohol sales.

The number of centres has remained relatively static over the past decade, whilst the number of lanes has

reduced as other ancillary activities increased. Despite recent corporate activity, it remains a fragmented market broken into four types of operator:

• Major multiples (c71% market share): five or more schemes, with the top three controlling 50% of all lanes

• Other multiples (c5% market share): fewer than five centres

• Urban bowling operators (c7% market share): catering primarily for professionals in city centre locations, with an emphasis on food and beverage

• Independent operators (c17% market share): single centres that are typically smaller and in tertiary locations


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The bowling market is comprised of 145 branded locations within the leisure universe, up from 122 in 2009. It is led by Hollywood Bowl Group. In 2017 the Group operated 319 schemes across the UK, of which 43 are within the leisure universe (Table 12).

The bowling market is led by Hollywood Bowl and Tenpin

Table 12

Schemes in investable universe 2017

Hollywood Bowl 43

Tenpin 40

MFA Bowl 28

AMF Bowling 11

Namco Futurescape 8

Superbowl 6

All Star Lanes 5

Bowlplex 4

Source: Savills

CASINOS: there are thought to be 146 casinos in Great Britain, 22 of which 45 are within the leisure universe. The number of casinos has held relatively static since 2009, dominated by Rank Group and Genting UK (Table 13). The casino market is heavily regulated and gambling rates in the UK are falling. If the National Lottery is excluded, only around a third of the adult population gamble on a regular basis.

The casino industry has consolidated

Table 13

2009 2017

Rank Group 32 63

Genting UK 45 41

Others 28 33

Caesars 11 9

Gala Coral Group 27 0

Total 143 146

Source: The Gambling Commission

BINGO: “In-person” participation in bingo increased by 2% between 2013 and 201626, but growth has been driven by use of machines rather than hall-based games. There are thought to be 583 bingo halls in the UK. It is a fragmented market outside of the main brands, with approximately 365 operators in places such as working men’s clubs and holiday parks27. There are thought to be only 99 bingo halls located within the leisure universe.

“We have an intentionally family-focused offer; household expenditure on bowling has proven to be more resilient during economic downturns. We represent good value for money, with the average adult game only £6.00 and people prioritise family time” HOLLYWOOD BOWL GROUP

26 Source: Gambling Commission 27 Source: Gambling Commission


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Implications for owners

Vital statistics

• Bowling operators require units sized between 15,000 – 30,000 square feet

• The more “traditional” operators are usually located within leisure schemes and shopping centres

• Urban operators require units in prime shopping centres and high streets, with character buildings preferred

Rents

• Bowling rents within leisure schemes average around £8 – £9 per square foot and have been consistent since 2009

Near-term trends

Property

Experience

Like other leisure operators, bowling operators are attuned to consumer demand for experience and are segmenting their offer to make it more relevant to distinct groups and wide market appeal.

“We believe there is room for growth in the bowling market from those operators able to capitalise on the consumer preference for experience. We enhance experience through upgraded seating, bars, a great food offer and VIP areas. We are also focusing more on leveraging social media to promote our product eg. people can directly upload photos and scores onto their social media pages.” HOLLYWOOD BOWL GROUP

Service on demand

Cashless payment systems can speed up transactions and eventually allow for loyalty-driven variable pricing or customer loyalty incentives.

Operations

Online threat

Participation rates for bingo and gambling are rising in aggregate – but this is due to the increased popularity of online platforms.

Ancillary incomeThere is a greater focus on catering, retail and amusement arcades from operators; all forms of ancillary income. This is important if all the lanes/tables are full; it keeps people spending!

Operational efficienciesAs the development of new schemes slows, operational strategy is focused on increasing visit frequency (which can be very low when compared to eg. the cinema) and spend per visit.

Value for moneyMany operators are positioning themselves as “value for money” rather than “value’, arguably making them more defensive against economic instability.

Source: Hollywood Bowl Group

Source: Hollywood Bowl Group


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Emerging “big box” leisure

The “here and now” Alongside the traditional big box operators, the range of operators falling under the D2 planning use has expanded to incorporate activities such as trampoline centres, urban golf, escape rooms and children’s play areas. The popularity of some of these activities has been called “competitive socialising’, and orientated towards the young professionals, not just to the family market.

“The personalisation of leisure is a big trend now: people want to be entertained on demand in a way that is personal to them.” KIDZANIA

The location of these types of occupiers has been split between out-of-town industrial estates, particularly trampoline operators attracted to the high eaves and “gritty” fit-out, whilst urban golf and ping pong operators have focused on high street locations close to their young professional client base.

There is often a greater focus on food and beverage within these types of operations, particularly alcohol sales in urban units, which has led some to state that this market is positioned for the “drink and play” crowd! This reflects the strong focus on “experience” from this type of operator.

Life on the ground TRAMPOLINING: virtually non-existent in 2009, operators have expanded so quickly that some markets are already considered saturated. Savills estimate that there are 156 sites from 72 different operators, with the top five brands (Flip Out, Oxygen, Freejumping, Tramp2Lean, JumpIn and Gravity) controlling around a third of those sites. Some operators are now looking to diversify their offer to differentiate themselves from the competition, such as adding climbing walls and introducing assault courses.

GOLF: there are an increasing amount of mini/crazy golf operators in the UK, all with slightly different propositions. Table 14 lists some of the branded golf operators in the UK at present.

The number of indoor golf operators is increasing

Table 14

UK locations in 2017

Paradise Island Adventure Golf 6

Plonk Crazy Golf 5

Junkyard Golf 3

TopGolf 3

Ghetto Golf 2

Roxys Ballroom 2

Swingers 2

The Lost City 2

Birdies 1

Dragon Quest 1

Puttshack 1


35

Property implications

Vital statistics

Table 15 illustrates the range of property requirements from this occupier base, suggesting that they could be located within many different types of scheme. Children’s gyms will often require floor to ceiling heights of 3 metres plus.

Emerging D2 operators have a wide range of property requirements

Table 15

Unit size (sq ft) Preferred location

Trampolining 20,000 – 40,000 Parks, solus units, shopping centres

Urban Golf 15,000 – 20,000 City centres, first floors, basements, retail or leisure parks

Table Tennis 6,000 – 15,000 London or major cities, basements or first floors

Axe Throwing 3,500 – 6,000 Central London

Source: Savills

Near-term trends

Rents

Anecdotally, rents are thought to be around £8 per square foot, but can rise to around £20 per square foot for high street locations.

Property

Location, location, location

Growth of these operators is expected to focus on high-footfall locations, such as shopping centres and leisure parks. The target demographic for emerging D2 operators is office workers and/or young professionals, alongside shoppers. Whilst the majority of brands started in London, major regional city centres are now on the requirements list.

Saturation, saturation, saturation Already an issue for some sectors as some operators engage in a “race for space” – particularly trampolining.



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Operations

Talent spotting Expect to see further diversification within the D2 market. Concepts such as climbing walls, children’s gyms, assault courses and axe throwing will expand across the UK over the next couple of years. Children’s play areas are rapidly becoming more sophisticated, with reality/immersive experiences such as 360 Play, or wider-scale concepts such as Kidzania.

“Expect to see further strong growth within the competitive socialising sector, but be mindful that concepts have longevity and will not be obsolete before the lease is up.” KIDZANIA

Virtual reality/e-gaming

Virtual reality has been much discussed but to date has little presence in the UK market. E-gaming has begun to be more commonplace in the UK, such as the Game “Belong” concept. eSports is where professional gamers compete against one another in pairs or teams. It is an industry that is projected to be worth over £1bn by 2020. However, it remains very expensive compared to other social activities, particularly for core family markets.

“Virtual reality is being considered, which would need to be manned for opening hours. Currently the offer is focused on “experiences’, not games and therefore does not directly appeal to our core audience.” HOLLYWOOD BOWL GROUP


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What will leisure property look like in the future?


1 Continued divergence of requirements for new space: multiplex operators seeking sites of around 40,000+ square foot, whilst the boutique operator preference is for three to five screen sites

2 Owners should consider ‘off pitch’ screening locations or repurposing quirky but functional space: rooftops, car parks, event space, empty units

3 Smaller, boutique brands can be anchors in the right-sized schemes

4 Position complementary retail in proximity of cinema to facilitate customer journey

5 The future rental tone is expected to be around £12.00 – £18.00, with reverse premiums of £1.0 million – £3.0 million; important role of owners in refurbishment initiatives

1 How the inside of a restaurant looks will become just as important as location in what underpins a successful restaurant

2 In a 3,000 – 4,000 square foot unit, there needs to be around 100 – 120 tables to ensure there is maximum revenue generation

3 Configuration should be matched to fit-out and concept: central bars don’t usually work in casual dining restaurants, for example

4 Configuration should also be mindful of other trends, such as third-party delivery companies that require separate entrances to kitchens

5 Expansionary activity from multiples may be slowing, but there are many well-managed smaller groups with a point of difference looking to take space – quality independents can challenge household names

Cinemas

Restaurants

Source: Odeon


40

1 Larger chains have a preference for out-of-town locations; put them front and centre as opposed to in off-pitch space

2 Premium brands have pioneered bars and cafés in their concepts to enhance the lifestyle concept. Owners can do the same placing café and coffee shops next to gyms

3 Specialisation on a single activity can give brands a clearly defined offer, but it can also be a barrier to repeat visits – successful brands take a holistic view and aspire to diversification e.g. add a yoga class onto the schedule

4 The focus of “super-premium” brands is on shorter (expensive) classes. This could mean the expansion ceiling is limited to London or that the offer needs to be diluted

5 Be mindful of budget operators taking market share from premium offers (look at exposure on scheme)

1 Flexible space is vital for traditional pastimes, such as bowling operators, to refresh and reconfigure their own units. This is key as business strategy orientates towards increasing number of repeat visits

2 Operators should be offered prominence if it is a proven concept and used as leverage in marketing

3 Emerging operators/concepts should be considered for under-used space and off-pitch space

4 “Concept-heavy”, trend-based operators can work better in more retail-focused schemes or in-town locations, for example those businesses positioned towards the after work crowd

5 Physical infrastructure that allows for new initiatives to be deployed smoothly, such as cabling and high-speed internet for cashless payment systems

Health and fitness

Big box and other D2 operators



41

What will be the implication for leisure owners?

Specification • Preference for hub/clusters that create a destination

• Smaller units in-town, larger units out-of-town

• Emphasis on efficiencies and densification of space

• Number of units that creates economies of scale

• Outward-facing schemes, visible with attractive frontage

• Public realm that facilitates placemaking

• Efficient road system and adequate automobile and bicycle parking

“Kidzania is looking to expand across the UK over the next few years with a smaller model, whilst the franchise has a global pipeline of around 20 sites over the next 36 months.” KIDZANIA

Configuration • Units arranged in hub/cluster formation

• Blend of unit sizes across scheme

• Curated mix of leisure and retail if appropriate

• Thoughtful adjacencies that facilitate customer journey

• Easy access for third-party delivery services

• Anchor if “hub’ scheme

• Multi-channel capability e.g., pick-up lockers, storage

• Manage and curate commercial space e.g., vans/carts

We have a shorter dwell time than some other restaurants, which means we feel we are usually part of a combined event – for example; along with a shopping trip, cinema visit, night out etc. We do need a lot of pedestrian traffic, which drives the impulse visit.” NANDO’S

Implications for owners of leisure property

PHOTO 28

Source: Five Guys

Source: Nando’s


44

PHOTO 30

PHOTO 31

Location • Major centres, attractive smaller towns, transport

hubs

• Range of high street rents mean you need to pick carefully

• Out-of-town where there is a weaker high street

• Dominant or manageable competition

• Limited fascia cannibalisation

• Fascia that is aligned with demands of catchment

• Stable/growing population, family housing

“Pizza Hut is a family concept… there is a strong nostalgia element and customers often try new concepts then revert back to what they know. Underpinning this is a very strong and egalitarian brand… representing a good value for money offering.” PIZZA HUT

Future-proofing • Flexible space; cut & carve units

• Technology embedded rather than retrofitted

• Automated payment systems, smart car parking

• Sufficient cabling and servicing to increase capacity

• Product is important: concepts need authenticity

• Meets EPC/BREEAM guidance as minimum

• Engagement with local community initiatives

• Interactive hoarding/digital display screens

• Social media engagement in owner’s control

“The best asset managers look at the bigger picture and try to stay ahead of the game, not just reacting to trends.” SIMON RUSSIAN, HEAD OF RETAIL – LGIM REAL ASSETS

Source: Pizza Hut

Source: Odeon


45

Our conviction themes

Destination is everythingConsumer demand is orientated towards experience, and leisure time is now a multi-touch point journey. Leisure occupiers want to be co-located with other best-in-class operators in “hubs” to create a destination.

“We are not just investing into our restaurants, we’re also investing into our people and have now set up a training scheme for our chefs.” CASUAL DINING GROUP

“We have a very clear location strategy: we prefer to co-locate with prime cinemas, which creates a leisure “hub” or destination for family and corporate visitors.” HOLLYWOOD BOWL GROUP

“Cinemas are still one of the best anchors for leisure, although we also like to be located next to D2 operators that attract families, such as trampolining.” PIZZA HUT

Destinations need management planning It is vital to create a sense of place, which requires more than the traditional asset management skill set of lease negotiation. The evolution of shared space should be considered to the same extent as physical units.

“The best landlords have “destination management planning”; taking a holistic view on connectivity, commercialisation and placemaking to deliver the best experience and optimise footfall.” KIDZANIA

“A good destination is created through the quality of the car park, landscaping and occupier mix.” ODEON

Fit-for-purpose means flexible“Fit-for-purpose” now means flexibility: modern-day occupiers needs flexible space. This can be achieved through modular fit-outs, temporary events space or utilising empty units. It can also be providing units that allow occupiers to reconfigure their own layouts easily.

“Units are being forced to work harder as assets, such as our new Pay on Entry offer and other P&L savings. Reduction in kitchen size is something that needs to feed through to any new restaurants/concepts.” PIZZA HUT

Do not overlook infrastructureTechnology and hard infrastructure are two vital components for a future-proofed scheme. This includes ensuring that there is the correct cabling for high-speed data delivery up to the installation of EV charging points for electric vehicles. Wifi is now a right – not an option! Use physical architecture to create a sense of place, with elements of localism

“The importance of (free) car parks cannot be underestimated! Even a small charge can be the swing factor for people deciding if they are going to visit a scheme. That said, if car use continues to fall then redeveloping car parks for other uses can offer big opportunities and the option to do something different.” SIMON RUSSIAN, HEAD OF RETAIL – LGIM REAL ASSETS

“If you automate and sterilise things too far you are in danger of denying your customer an “experience”. Technology needs to be simple, intuitive and insofar as it can be “future proof” or adaptable.” PIZZA HUT

Flexible leasing for future occupiersLeisure services product is evolving quickly and leasing needs to reflect this. Some occupiers will want longer terms (particularly to amortise high fit-out costs) but others are demanding shorter contracts.

“Fit-out costs need to come down to make shorter leases really work, and to make write-off periods shorter.” SIMON RUSSIAN, HEAD OF RETAIL – LGIM REAL ASSETS

Our conviction themes


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Rents need to be affordable for allResponsible owners focus on keeping rents affordable. Rent-to-turnover ratios are used as a starting point, then an open conversation should be held with the prospective occupier to ensure that revenues will meet obligations over the long term.

“For too long, there has been a perception that what one occupier pays, the next pays, no matter the longevity, financial structure or acquisitions strategy of the respective brands. When an occupier who paid a record rent to enter a scheme subsequently goes bust, the more financially resilient occupier with cash in the bank remains, footing the bill for their mistake. In the long term this harms both occupiers and owners.” PIZZA HUT

Investment is vitalBest in class occupiers recognise the benefits of investment into units to slow obsolescence and refresh the offer. Owners can facilitate this by capital contributions in return for lease length

“We are at the end of reimaging the entire portfolio, which has seen nearly £60m spent over the last five years; refreshing fit-outs and ensuring processes are as efficient as possible. This has generated very strong improvements in like-for-like sales… the right investment can transform a business.” PIZZA HUT

“It is vital to refurbish sites regularly to keep people interested. Our view is that a full refurbishment is required every six to seven years, but constantly maintaining the centres is also important as we have 13 million visitors across the estate.” HOLLYWOOD BOWL GROUP

“Reinvestment into restaurant sites is vital for a long-term sustainable business; it becomes harder and more expensive to retrofit sites the longer you leave it. The purpose of refurbishing a site is for revenue protection rather than a direct uptick in sales; you need to keep people interested.” NANDO’S

Owners as connectors not passive collectors (of rent)Strategic use of social media, apps, websites but also signage, events and marketing to encourage customers to engage with the scheme and its occupier base, transforms the owner’s role from passive collector of rent to being an agent of change in the performance of the scheme.

“Food markets are also starting to perform an educational function; demonstrations and workshops. This helps to embed backstories with consumers.” BRITISH STREET FOOD

Look beyond covenants to curation of occupiersGreater importance on curating space and occupiers, rather than just looking at the best covenant and rental deals. Efforts should be made to avoid stacking too many operators with similar concepts or price points. Owners should also leverage off the consumer trend for localism and talent spot local operators to create a combined offer and away from traditional, mass market-branded schemes.

“You can attract new entrants by providing a really good white box then helping with window dressing. This has been proven to work with restaurants – there would be a riot if Trinity Leeds took out its food market now.” SIMON RUSSIAN, HEAD OF RETAIL – LGIM REAL ASSETS


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The long-term future of leisure BY

Source: The Future Laboratory.

MK2VR, Paris. Photography: Benoit Florencon

THE FUTURE OF LEISURE : IntroductionIn the next decade, leisure in the UK will undergo a major transformation, through the emergence of cutting-edge leisure formats, innovative dining and immersive, hyper-connected and age-inclusive destinations.

Driven by UK consumers’ craving for highly sociable, community-orientated spaces, the cinema of the 2020s will be a dynamic multi-use destination where friends and families congregate for elevated entertainment, social gaming and convivial co-working.

Fitness hubs and casual dining destinations will use technology to enhance exercise and eating out, employing visually driven experiences and data analytics to support customers in their quest for an optimised body and mind.

Out-of-town leisure destinations, housing new formats and catering for increasingly diverse regional audiences, will be radically modified in configuration and specification as advances in infrastructure and changing suburban and city communities demand that leisure destinations become responsive to their needs and fit for multiple uses.

: Leisure in the UKAt present, the UK leisure market is worth £117bn ($162.3bn, €132.6bn) in revenue, according to Deloitte’s Passion for Leisure study. The sector is attracting one and a half times more discretionary spending than retail and is growing twice as fast.

“Leisure spending is a good indicator of consumer confidence and the overall direction of the UK economy, [and] consumers feel largely positive and have sufficient disposable income to justify spending on non-essential leisure activities,” says Simon Oaten, partner for hospitality and leisure at Deloitte.

Spending on leisure emphasises just how important it is to UK family life. Data from the Office for National Statistics (ONS) shows that some households spend about a fifth of their weekly outgoings on leisure, while 75% of UK holidaymakers are opting for staycations, according to 2017 Barclay’s data – a positive development for UK leisure operators.

Dining out was the UK’s most popular leisure activity in the first quarter of 2016, with 85% of UK consumers preferring to visit cafés and restaurants rather than dining at home, according to Deloitte. The number of dining out visits is forecast to reach 83m in the UK in 2018, up 0.7% on 2017 figures, according to NPD Group.

Martin Raymond, co-founder of The Future Laboratory, explains: “Leisure activities are no longer the reserve of special occasions. UK consumers now regard leisure as essential to daily life.”

“Spending on leisure might vary between UK regions, age groups and, as recent studies show, between men and women, but the desire to socialise, play, interact and be entertained remains intrinsic. Consequently, leisure is a strong and attractive area for investment, and an exciting arena in which new brands, innovations and experiences are constantly emerging to keep consumers entertained,” adds Raymond.

The Future of Leisure report, commissioned by Legal & General Investment Management (LGIM) and produced by The Future Laboratory, explores the key social, technological and cultural shifts set to have an impact on UK leisure in the next decade, and examines the emergence of new opportunities that will inform exciting, practical and future-proofed new directions for leisure destinations.

: Fusion Cinema

Source: The Future Laboratory

The cinema is an enduring stronghold of entertainment and socialising in the UK, and it will remain a hive of convivial activity in the mid-2020s, becoming a multifaceted, mixed-use destination known as the Fusion Cinema.

According to CBRE, 33 new UK multiplex cinemas are set for development in the next three years, with 50% of these in shopping centres rather than dependable mixed-use developments such as out-of-town leisure parks.

Importantly, however, these new developments will provide cinema operators and leisure developers with the opportunity to explore how cinema blueprints, functions and features must be reworked to produce future-proofed Fusion Cinemas.

As the anchor for in- and out-of-town leisure destinations, the Fusion Cinema will be a multisensory space that fosters a sense of community. A vibrant hybrid of traditional screens and heightened hospitality, it will use new technology and instinctual zoning to create energetic and alluring destinations not just for film, but for friends and families to socialise, learn and explore new leisure pursuits.

The reconfiguration of screens and the integration of intuitive technologies such as AI will transform cinema visits into hyper-personalised experiences that pull people away from their sofas and streaming channels and into the embrace of Fusion Cinema.

Gucci Garden by Alessandro Michele, Florence

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: The Civic CinemaBy the mid-2020s, UK cinemas will be cultural community spaces that offer film screenings, co-working, education and enhanced dining, with programmes of events running from morning to night.

“Rather than being just movie centres, cinemas will turn into entertainment centres [that] bring people out of their homes,” says Daniel Jamele, CEO, co-founder and chief systems designer at MediaMation, a company that specialises in interactive leisure experiences.

“Cinemas have great audio and video, concessions, parking and access in prime locations. Yet they’re dead from Monday to Friday night, and have this great unused space,” adds Jamele.

With redefined zoning that makes use of dead space and turns defunct screens into multi-use halls, these lost hours will be put to use, drawing on the energy of local communities and their need to inspire new schemes and services.

“For leisure operators, it will be increasingly about the soft programming of their spaces, the extracurricular activities they can offer,” says Ashley Scott, Europe, Middle East, India and Africa region lead for leisure, hospitality and themed entertainment at AECOM.

These activities will define the Civic Cinema. Examples include Kino in Amsterdam, which offers co-working and meeting spaces for locals, and Bristol’s Watershed cinema, which features a studio for artists, creative companies, technologists and academics to work together.

Shaking up the limitations of boxy cinema surroundings, play and dining will also become lead attractions within the Civic Cinema, generating a rounded leisure experience under one roof.

With 2017’s 10 highest grossing movies rated PG, U or 12A, according to IMDb, tomorrow’s Civic Cinemas will place greater focus on being child- and parent-friendly. Physical adaptations to interiors will include designated children’s bathrooms, lockers, secure buggy parking and spaces adapted for play.

Cinépolis cinemas in the US and Mexico feature junior screens with in-built play areas for children to explore and interact. In-screen beanbags, ball pits and child-friendly snacks also encourage longer dwell time for families.

Cinépolis USA CEO Adrián Mijares Elizondo believes child-friendly cinemas will counteract the impact of the streaming services that threaten the future of cinema. “[Bringing kids in early] will increase the possibility of those guests becoming strong movie-goers as teenagers and adults,” he says.

Adults, too, will enjoy the benefit of tomorrow’s Civic Cinema, albeit through enhanced dining and socialising. By the mid-2020s, fresh food menus and elegant presentation on a par with contemporary restaurants and bars will supersede today’s sugary drinks and synthetically flavoured snacks.

The UAE’s VOX Cinemas THEATRE programme shows one approach, matching gourmet food and drink by celebrity chef Gary Rhodes with film screenings to create immersive at-seat dining.

In Sydney, the Palace Platinum cinema echoes a first-class airport lounge in both design and dining options, with sushi and sharing plates, a Prosecco bar, craft beers and an interactive wine wall that give adults a more refined cinema experience.

“[The cinema] is a destination with a social soul, an environment that must do more for visitors, play a larger role in their lives and be a meeting place that offers many things to do,” says Peri Macdonald, executive general manager of retail at Frasers Property Australia, the group behind the Palace Platinum development.

: The Multimedia Revolution


By the mid-2020s, artificial intelligence (AI) and virtual reality (VR) will drive a powerful Multimedia Revolution within Fusion Cinema, as UK leisure operators and developers recognise the powerful influence of these advancing technologies.

More than half (56%) of entertainment and media CEOs expect technology to reshape the industry by 2021, according to PwC, enhancing how individual customers experience and interact with the cinema environment.

Personalisation will define the Multimedia Revolution, as beacon technology and direct out-of-home advertising (DOOH) become valuable tools to target audiences and build valuable customer data.

AI-driven systems such as those used in London’s Piccadilly Circus and Nottingham’s Intu Victoria Centre will gauge the demographic of visitors, targeting adverts via strategically located screens as they move through the Fusion Cinema.

Elsewhere, beacons will fire notifications such as discount codes, event listings and capacity information directly to visitors’ devices, personalising them based on past visits and behaviour. “As you walk into the space, these systems will instantly retrieve your ticket to your mobile device, and communicate your seating and dining preferences to concessions, completely customising the experience,” explains Peter Karn, creative director of leisure and museum experience designers MET Studio.

Equally, building on the Civic Cinema ethos, VR will enhance the shared experience of friends and family, providing more nuanced and meaningful interactions around films. Highlighting existing expectations, Omnico Group reports that 65% of respondents in a recent study of consumers in the UK, the US and China expect VR experiences to exist in theme parks by the early 2020s.

French cinema chain MK2 has created MK2VR, a location-based VR experience designed for groups of up to 12 friends, showing

MK2VR, Paris. Photography: Benoit Florencon

The long-term future of leisure

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documentaries, short films and simulations from about £10 ($14, €12) per visit.

MK2 co-owner and managing director Elisha Karmitz emphasises its social merits: “Most people see VR as a technology that is complicated and isolating, but it’s how you display and provide the technology that transforms it into a social experience.”

Importantly, future uses of VR in cinema will not be limited to niche, independent environments. AMC Entertainment, owner of Odeon and UCI, is bringing VR to UK and US audiences, having invested £14.4m ($20m, €16.3m) into virtual reality specialist Dreamscape Immersive.

IMAX’s pop-up global VR Experience Centres, as seen at Manchester’s Trafford Centre, hint at the modular and moveable VR stations that will immerse adults and children in tomorrow’s blockbuster films.

“What people want is the fantasy that a film world actually exists, and they want to step into that world and have their own experience,” says Bruce Vaughn, CEO of Dreamscape Immersive.

Embodying the Multimedia Revolution, AI and VR will effectively revive tired and overlooked cinema formats, inspiring visitors to spend more time in the Fusion Cinema surroundings by providing unique and personalised moments.

: Esports UprisingBuilding on the potential of VR arcades in the future Fusion Cinema, esports will reinforce the transformation of city centre cinemas into multimedia meccas for gaming fans to meet, enjoy international tournaments and improve their own gaming skills.

The tangible financial opportunities for the leisure market offered by esports are clear. PwC suggests that esports revenue could triple by 2021, while the value of the global esports market is expected to reach £1.4bn ($1.9bn, €1.5bn) in 2022, according to Ovum.

Driven by visually literate Generation I, Generation Z and Millennial consumers, the UK’s Esports Uprising will go hand in hand with the Fusion Cinema of the mid-2020s, with UK initiatives already under way to support the growing appetite for esports.

“Our pilot after-school esports clubs revealed demand for permanent, regional clubs in the future, not just from teachers and parents but from the children themselves,” says Dominic Sacco, content director of the British Esports Association.

Fusion Cinema operators can look to esports to both attract and support future patrons, embodying The Future Laboratory’s macrotrend Life-long Learning, in which brands provide services to assist the personal development or curiosity of customers around a subject.

“By providing esports-led activities that support the learning of younger generations, cinemas will become habitats that boost confidence and motor skills, and for older esports fans, will help to improve their management and delegation skills,” explains Daniela Walker, Foresight editor at The Future Laboratory. “Cinemas should consider how to integrate esports into their offer to attract tomorrow’s loyal gaming enthusiasts.”

Leading the way in the UK, London’s Vue Fulham Broadway houses The Gfinity Arena, the country’s first dedicated cinema space for esports, with a capacity for more than 600 people,

custom-built stages, high-speed wifi, dedicated entrances, ticket machines and additional confectionery stands.

Across the Atlantic, Canada’s Cineplex has bought a majority stake in WorldGaming, an esports tournament platform for £7.2m ($10m, €8.1m) and has invested another £3.6m ($5m, €4m) to create an esports league to be played solely through its chain of cinemas.

“There is a clear desire for esports destinations in the UK, but for those wishing to invest, it’s about reaching out to the esports community and understanding their needs and the infrastructure required to run and host events,” emphasises Sacco.

For future Fusion Cinema operators, the return on investment must be considered against the required adaptations, accessibility and connectivity upgrades. But for leisure developments in major cities, the opportunities provided by the Esports Uprising should not be ignored.

“Esports are the perfect opportunity to use the cinema out of hours, and probably throughout the weekend, too,” says MediaMation’s Jamele. “It’s a perfect win-win for [cinema operators]: there already is a customer base, so it’s about how to expand on it.”

Fusion Cinema Toolkit • Reformat for Flexibility: The hard configuration and facilities

of cinemas must be adapted to meet the multi-use demands of the 2020s, incorporating professional kitchens, modular interiors, adaptable lighting and audio systems

• Make Connections: Invest in superior wifi connectivity, digital screens and intuitive AI technology to ensure interior and exterior spaces are responsive and instinctive to visitors’ requirements

: Optimised Options


In the decade ahead, the demands of consumers’ always-on, hyper-connected lifestyles will fuel the emergence of Optimised Options in leisure, fitness and casual dining formats.

“Today, people are busy with work, with families, with the daily grind and sometimes their own health is the least of their priorities,” says professor Kevin Fenton, director of health and wellbeing at Public Health England. Yet, as people become increasingly aware of modern living’s impact on their body and mind, they are beginning to consider how to improve their lifestyle.

Museum of Ice Cream, San Francisco.Photography: Katie Gibbs

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In 2017, Nielsen Book reported a 13% rise in sales of wellbeing and mindfulness guides, something recognised by Judy Piatkus, founder of lifestyle publisher Piatkus Books, who notes: “Millennials, for example, are looking at their lives, saying: “This isn’t working, how can I manage my life? How can I be the best person I can be?””

Such acknowledgement is fuelling a nationwide quest for personal optimisation. PwC reports that in the year to spring 2017, 61% of the UK population took steps to improve their health, while 66% improved their diet and 53% exercised more regularly. Meanwhile, the mindfulness app Headspace has reportedly been downloaded more than 11m times.

The expectation of future Optimised Options will generate myriad opportunities for new, innovative and engaging leisure, fitness and casual dining formats that support body and mind, and boost social interaction.

Technology-driven exercise programmes will create enhanced fitness experiences, while new leisure formats focused on immersive group activities will counteract loneliness and improve moods.

Casual dining brands will use new flavours and dining formats to boost social wellbeing, while technology will make dining out efficient and intuitive for tomorrow’s optimisation-seeking consumers.

: Social FitnessIn the decade ahead, leisure operators will recognise the benefits of providing city centre and out-of-town fitness and leisure spaces that double as vibrant social hives.

Gym membership continues to rise in the UK, up from 9.2m to 9.7m memberships in 2016, according to the Leisure DB. Capturing this growth, forward-thinking fitness brands are creating hubs of Social Fitness shaped by entertaining, hyper-connected shared experiences.

“When it comes to leisure, people want a new experience that they haven’t had before, something that is going to wow them, is entertaining and immersive,” notes MET Studio’s Karn.

New York’s Wellvyl exemplifies this convivial approach to fitness. It builds its social environment by encouraging members to bring friends to classes. Elsewhere, Montpelier’s five-storey Le Nuage is a modern Social Fitness destination, housing dieticians, osteopaths and a health-orientated restaurant.

With their hyper-connected lifestyles, leisure consumers of the 2020s will expect technology to amplify the Optimised Options available to them – a key consideration for operators and those building new leisure developments.

At New Zealand’s Les Mills gyms, spin classes already feature interactive big screens to transform boisterous sessions into challenging virtual rides through global cities. Connected devices and tracking apps will fuel a new era of Social Fitness, interacting with screens in class to display individual heart rates and progress data which, like Bannatyne MyZone app, will inspire optimisation-seekers to compete with one another.

“Every sector is embracing new and interactive technology [so] we are investing to stay ahead of industry trends, and help members fulfil their fitness goals in a stimulating and fun environment,” says Justin Musgrove, CEO of the Bannatyne Group.

The notion of fun and exploratory activities will be intrinsic to Social Fitness in the 2020s, working in tandem with the rise in Optimised Options through competitive socialising and casual dining.

: Positive Pursuits


Beyond the gym, tomorrow’s Optimised Options will include Positive Pursuits – exciting and alternative leisure formats that inspire social interaction and set the benchmark for regional operations to follow.

According to Havas Media’s Meaningful Brands 2017, 75% of consumers expect brands to make a greater contribution to their wellbeing and quality of life, a figure bolstered by Nesta’s research, which highlights how shared leisure activities contribute to wellbeing and feelings of inclusion.

“This social connectedness generates a positive feedback loop of social, emotional and physical wellbeing,” says Emma Seppälä, science director of the Stanford Center for Compassion and Altruism Research and Education, and author of the 2016 book The Happiness Track.

Consequently, customers’ search for Optimised Options in leisure will drive the emergence of competitive, socially driven Positive Pursuits across the UK.

Targeting workers and mixed social groups, iterations such as Swingers crazy golf, Bounce ping pong, and gaming bars such as The Four Quarters and Meltdown in London signal the future formats set to transform town centre and out-of-town developments. Often starting life as pop-ups or with shorter, flexible leases, these formats utilise unused or secondary spaces.

“Customers are increasingly looking for something different to do, rather than just going out for meals or to the cinema, and many of these new formats are seeking to expand to some of the major regional cities throughout the UK,” says Rachel Stern of Colliers Licensed & Leisure Agency. “In our view, this is the beginning of a new trend and not a fad, as high demand means most places are moving to permanent locations.”

For all generations, a major benefit of these social spaces is the immersive escapism they offer from daily life. Experience-driven concepts such as The Crystal Maze have already expanded to Manchester, welcoming audiences aged 18 and upwards alongside those that recall the original 1990s tv show, while London’s KidZania, located in the Westfield shopping centre, engages children in playful job roles while their parents enjoy the centre’s other leisure and retail pursuits.

The Assemblage, New York


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For tomorrow’s hyper-connected leisure consumers, escapism in such novel environments will provide both mood-enhancing benefits and visually inspiring surroundings. In the US, pop-up social leisure formats designed for the Instagram generation, such as the Museum of Ice Cream, capture the zeitgeist. For £27 ($38, €31) a visit, adults can wade through pools of sprinkles and devour exotic ice cream flavours amid the museum’s kitsch setting.

Offering similarly immersive surroundings, New York’s tiki bars have become must-visit destinations, with their footfall rising 21% in 2016, according to data from Foursquare. Elsewhere, San Francisco’s Color Factory, an art-inspired leisure space, uses materials, objects and scent to immerse visitors in wall-to-wall colour, complete with photo-friendly installations.

For out-of-town developments, the emergence of playful activities such as inflatable assault courses for adults, like The Monster in Australia, demonstrate how Positive Pursuits can become day-long activities, with live DJs and group eating and drinking that maximise the use of external space or vacant units.

Looking ahead to the 2020s, leisure developments will embrace the visual-first prospect of mood-enhancing group leisure, and with it enhanced dining that inspires return visits.

: Enhanced EatingFor optimisation-chasing consumers, casual dining will be transformed into Enhanced Eating – a tour de force of flavours, feel-good foods and novel experiences shaped by the impact of innovative technology.

Dining out is already an intrinsic part of UK consumers’ weekly leisure schedule. Almost two-thirds of UK Millennials (58%) eat out at least once a week, twice the percentage of Baby Boomers (29%), according to research by Nielsen. The same study also shows that 46% of Generation Z, a group known for being money-conscious, eat out at least once a week.

Daniela Walker, Foresight editor and food expert at The Future Laboratory, describes how UK expectations of dining are set to change: “All ages and attitudes are interested in exploring flavours through eating, but in the next 10 years, as ingredients become more accessible at a regional level, Generation Z will expect more exotic cuisines to be on their doorstep.’

Dining’s leisure credentials are evident. A 2017 study by Y-Pulse reveals that 71% of Millennial respondents attend food-focused events, while a report from food brand Sacla in partnership with futures consultancy Trajectory says that 60% of over-65s describe themselves as adventurous when it comes to trying new cuisines.Enhanced Eating will go beyond explorations of taste, however, as UK consumers seek dining that provides holistic benefits, heralding the upsurge in vegan, dairy-free and gluten-free options as standard.Recent research by Blue Diamond indicates that 19% of UK adults want to try a vegan or dairy-free diet in the year ahead. Notably for leisure destinations, 12% of the UK’s vegans are in rural locations, while 88% are in urban and suburban areas, according to The Vegan Society.

“Innovative brands are altering the narrative around vegan and plant-based eating, making healthy food a different proposition from what it used to be, so diners still feel as though they are indulging,” explains Walker.

By Chloe, a vegan dining brand with 11 locations in the US, made its UK debut in February. Elsewhere, UK concept Pure Filth will open a permanent space in 2018, offering “healthy food for hedonists” under the direction of chef Gizzi Erskine.

“A key part of this Enhanced Eating movement will be down to new cooking techniques or respected chefs entering the casual dining market to create high-end and exciting experiences for everyday diners,” adds Walker.

“We are definitely seeing a movement, not a fad,” adds Bonnie Riggs, restaurant industry analyst at NPD Group, in relation to the emergence of Enhanced Eating. “Consumers report “healthy” as the number one characteristic they want to see more of on restaurant menus, and what they mean by that is they’re looking for food that’s real.’

Living hyper-connected lives through their mobile devices, regional consumers are following the evolution of casual dining environments, in turn expecting the same innovation at a local level.

Promisingly, cities and towns in the north of the UK are earmarked to outstrip London in their appetite for new dining experiences, positioning them as the regional driving forces for Enhanced Eating.

In 2017, UK openings suggested early signs of change, with the Tyne Tees region boasting 3.5% more food-led licensed premises in March 2017 than March 2016, according to a Market Growth Monitor report. “Growth in regional cities is in part a consequence of the toughness of the London market, with competition so fierce and property costs so high,” says Jamie Campbell, CGA Peach account director and co-producer of the Market Growth Monitor reports.

And where London has long been the epicentre of independent restaurant ventures, regional locations are hot on its heels. Small operators in regional cities now account for 40% of UK restaurants, up from 34% in 2011.

“Despite talk of identikit high streets, the majority of new restaurants are being opened by fledgling multisite operators and independents,” adds Campbell, hinting at a future when leisure destinations and asset managers will explore and support start-ups or new market entrants over ubiquitous dining brands.

Indeed, consumer appetite for independent brands and new flavours is inspiring leisure providers to animate unoccupied or short-term use spaces, adding community context to new developments. Examples include Dalston’s Street Feast, Bristol’s Wapping Wharf and Manchester’s Hatch, each of which has the potential to translate into – and transform – out-of-town dining hubs.

“An extension of the Enhanced Eating experience will be an immersion into diverse cultures, flavours or traditions under one roof – the new leisure day out,” notes Walker. Exemplified by FICO Eataly World in Bologna, Italy, dining will become part of a wider educational and sensorial experience.

Immersion will also be achieved through apps and technology such as AI, satisfying the 79% of US consumers who already say technology improves their dining experience , according to a study by US restaurant software firm Toast.

One example is a KFC restaurant in China, which uses facial recognition technology to enable patrons to pay for their order with a smile at self-service machines, providing efficiency as

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well as a novel and engaging brand experience. Elsewhere, US healthy food restaurant chain Everytable uses technology to adjust its product pricing according to location and the income of local customers.

For restaurant operators, embedded AI systems will advance daily processes. According to a study by Oracle, 60% of restaurant operators expect AI to be mainstream in their operations by the mid-2020s, influencing menus, managing waiting lists, providing dynamic preparation times and assisting with seating forecasts.

Own-brand apps will emerge to counteract the impact of home delivery on dining out in the UK, building relations and data for brands through bespoke offers and pre-order options to drive visits. The number of UK hospitality brands seeking to develop their own app rose by 400% in 2017, according to CGA Peach, indicating a hyper-connected future for both Enhanced Eating brands and their customers.

As Sarah Humphreys, lead partner in casual dining at Deloitte, explains: “The restaurant of the future will use technology throughout the customer journey, whether it be to provide pre-ordering services or to connect to consumers in-store to offer customisable menus and dynamic pricing.”

Optimised Options Toolkit• Access all Areas: Consider how technology can enhance the

experience of leisure consumers across fitness, social and dining pursuits, and the essential data this will provide leisure operators and asset managers

• Dare to Trial: Animate unused space or problematic sites with trial or pop-up formats that revitalise regional destinations

: Conviviality Spaces


Future master planning and placemaking will radically advance out-of-town and inner-city leisure destinations by the mid-2020s, transforming them from soulless identikit spaces into attractive and intuitive multi-use centres for increasingly diverse groups of leisure customers.

The application of new technology, the evolution of local infrastructure and enhanced sensory surroundings will enrich future leisure destinations, turning them into engaging, flexible spaces that meet the changing expectations and requirements of regional UK communities.Understanding the needs not only of different age groups but of diverse and hyper-connected local communities will be imperative for future leisure destinations, as the existing concept of large boxes on the edge of town featuring duplicate branded destinations becomes tired and uninspiring.

: Civic Assets Some 94% of visitors to public spaces undertake multiple activities while there, according to the Gensler Experience Index 2017, so the expectation already exists that leisure placemaking – accounting for hard features such as car parks and softer elements such as events programmes and temporary installations – must be fit for purpose.

“Leisure placemaking is not just about design, it’s about community organisation and programming,” says Fred Kent, founder of the Project for Public Spaces. “In the decade ahead, the shift will be away from organised, controlled leisure spaces to those where visitors define how the space is used, based on where they would be connecting with people, where they can feel comfortable, happy and safe. It will be a major paradigm shift.’

Underpinning the future of leisure placemaking will be the creation of Civic Assets – destinations that reflect, celebrate and support the surrounding community.

For existing and future leisure developments, the onus will be on master planners and leisure operators to engage with community groups, local schools, SMEs and universities to inform new directions.

An example is Bangkok leisure space The Commons, which connects locals and expatriates through a roster of community leisure activities such as outdoor cookery and food-growing. In the UK, Bristol’s Wapping Wharf container park brings the city’s diverse residents together through city art trails, a performance space and a local food festival.Engaging improvements to public spaces – whether green spaces, improved lighting or seating – can boost footfall and trading by up to 40%, according to research by UK charity Living Streets.

British Land’s Aldgate Place development consulted with locals, resulting in more than 50% of its footprint being dedicated to new public spaces, including landscaped gardens, pedestrianised streets, play spaces and water features.

Such Civic Assets can also be built from established or neglected spaces, demonstrated by car company Mini through its Mini Living programme, which has worked with a Chinese property developer to transform an ageing Shanghai industrial site into a multi-use residential and leisure destination featuring exhibition space and play areas for children.

“We’re offering a place that can adapt to its residents, is flexible and allows room to breathe,” says Esther Bahne, head of Mini brand strategy and business innovation.

The Cooking Library by Hyundai Card, South Korea


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: Hyper-connected Districts


By the mid-2020s, consumers will be seamlessly connected to the world at all times – a state of being that will drastically augment future leisure placemaking and local infrastructure.

According to the International Energy Agency (IEA), by 2025, electric vehicle stock could reach 70m vehicles globally – with the potential to revolutionise transport infrastructure. Charging points and EV parking will command prime positions in out-of-town leisure destinations, encouraging suburban consumers to opt for electric or hybrid cars.

In a sign of the future, Warner Leisure Hotels has installed EV charging across its UK locations, while experience agency TRO has been appointed to deliver the UK’s first Electric Vehicle Experience Centre in Milton Keynes as part of the town’s £9m ($12.4m, €10m) Go Ultra Low programme.

But it’s not just the journey. High-speed, secure internet will be a necessity in future leisure placemaking, creating Hyper-connected Districts that provide sufficient bandwidth for browsing and interconnectivity between a location, visitors and their devices. “Such invisible technology will allow us to fully integrate into leisure spaces, to tune into or enjoy key moments,” says Kent. “We won’t be diverted by technology, as we are today, and simultaneously, technology will be what has drawn us to the place.’

The aforementioned beacon technology will drive direct and personalised messaging to leisure visitors to increase their experience and dwell time. In San Francisco’s Levi’s Stadium, more than 1,700 beacons communicate queue lengths and waiting times to visitor’ devices. By the 2020s, such systems will help leisure visitors to plan their visit better or explore alternative activities while there.

“We are moving into an era when devices will read what you need as you walk into a leisure space, and as consumers become increasingly harmonised with technology, these spaces will evolve accordingly,” explains Dimitrios Tsivrikos, a consumer and business psychologist at University College London.

Demonstrating how this might be applied, US retailer Walmart is reportedly exploring the use of face-tracking AI at checkouts to detect frustrated or unhappy shoppers, so staff can personally assist them.

Indeed, visitors’ moods and expectations will dramatically shape tomorrow’s Hyper-connected Districts. Euclid Analytics reports that 26% of Generation Z consumers expect retailers to offer a more personalised experience based on their shopping habits and preferences, signalling the potential for future leisure destinations to respond in a similar way.

Valentina Candeloro, international marketing director at customer experiences specialist Mood Media, says developers and leisure operators must prepare to enhance environments through technology. “The more brands put into providing subtle, surprising stimulus, such as curated music and customised scent, the more unique and thrilling their spaces will be. When your customers are delighted by these details, they are far more likely to share their experiences.”

: Leisure Lifestyles 2.0Changing consumer mindsets and lifestyle choices will have a big impact on UK leisure placemaking in the 2020s, as future generations flow between regional cities, the suburbs and city centres in search of Conviviality Spaces.

As Project for Public Spaces’ Kent explains: “People are much more attuned to where they want to be and how they want to live than they have been in the past because their expectations have been repressed by the restrictions of existing leisure in their community.’

Nielsen reports that more than half of Generation Z and Millennial consumers wish to live in the city, while 26% of both generations say they would like to live in the suburbs. Even as they embark on this new suburban life, however, their leisure expectations will remain informed by their past metropolitan lifestyles.

MET Studio’s Karn suggests how future out-of-town leisure destinations should keep pace: “There should be a permanent leisure offer for all communities, with a rolling platform of interesting events that move with the trends and local demographic needs.’

Indeed, home life will be a major influence on where and how the next generation of consumers spend their leisure time. Affected by market fluctuations and rising living costs, a 2017 CBRE survey states that 41% of UK Millennials aged 20–34 remain at or have returned to the family home, a figure that has grown by almost 25% since 1996, according to figures from the Office for National Statistics. This is in stark contrast to Millennials in North America (32%) and Germany (27%).

No matter where they live, however, CBRE reports that 20somethings and 30somethings continue to spend more than 40% of their monthly outgoings on leisure, particularly dining out and cinema – a reassuring statistic for regional leisure providers and future investment or development opportunities.

The future of leisure won’t be tailored just to younger consumers and nascent families, however. According to the Office for National Statistics, 11.8m people aged over 65 are living in the UK and they are enjoying longer, more active and healthier lives thanks to advances in medicine and improved facilities.

They also generate a fifth of the UK’s income in the hospitality and leisure industry, according to Barclays – yet only 5% of leisure businesses consider the over-65s as an important demographic.

Monica Toriello, an editor with McKinsey Publishing, outlines the opportunity that exists for future leisure destinations: “Today’s urban elderly are not only very different from each other, they’re also very different from previous groups of the same age. They’re retiring later in life, they’re more ethnically diverse, they’re more educated and they’re more active.”

Walthamstow Central Parade, London.Photography: Dirk Lindner

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According to Age UK research, 30% of people over 65 want to socialise more outside of the home, highlighting key opportunities for leisure placemaking and destinations to create welcoming, comfortable and inspiring leisure surroundings that understand and holistically respond to older consumers’ capabilities.

These might include cinemas that provide day-time film screenings with consideration given to lighting, audio and assistance for older audiences, for example, or casual dining formats that introduce menus designed to support the over-65s in body and mind.

This will be especially important for the 32% of over-65s in the UK who live alone – the majority women. “Being isolated or lonely is the way substantial numbers of people live today and part of this is because they’re not connecting with other people or don’t have access to community leisure spaces or places they feel comfortable in,” says Kent.

Promisingly, Barclays reports that almost a third (29%) of leisure operators in the UK plan to invest in improving age-related facilities for older leisure consumers by the early 2020s.

As the UK’s older leisure consumers become increasingly visible and important to the sector, they are poised to have a positive impact on future leisure placemaking and developments. “Active older people will come to heavily influence the way buildings and spaces explore the boundaries between transience and permanence,” says Dr Matthew Barac, co-author of RIBA’s age-focused Building Futures project.

For tomorrow’s leisure consumers, whether city-dwellers or regional residents, curious 20somethings or energetic retirees, the future of leisure holds vast potential. But it will be down to forward-thinking developers and operators to engage with their customers to confidently future-proof their leisure offers.

Conviviality Spaces Toolkit• Engage and Enthuse: Both new and established destinations

must engage with local communities to ensure their leisure offer remains continually responsive and aware of visitors’ needs

• Regional Reworking: As local demographics change they will bring diverse expectations of leisure. How can in- and out-of-town placemaking meet their requirements?

: Conclusion


For the UK leisure sector, success in the decade ahead will rest on a clever amalgamation of supporting consumers’ changing expectations and strategically applying emerging trends in the leisure sector to their business operations.

In order for the UK’s in- and out-of-town leisure destinations to remain resilient and attractive investments, these spaces must support local communities and provide an enhanced experience for customers. In turn, these destinations will stand out as attractive and inspiring spaces that supersede the bland, identikit leisure spaces that now pepper UK towns and suburbs.

“Investments will need to be made to improve the physical surroundings and technological aptitude of future leisure spaces, but this will provide greater value in the long run for operators and asset managers,” says The Future Laboratory’s Raymond.

“It will be down to leisure portfolio managers and investors to think beyond profit margins and instead to explore how to engage and connect with customers and communities, understanding their needs and expectations of local leisure destinations to keep them coming back for more.’

Cinema will remain central to the future of leisure in the UK. Developments will augment their buildings and overlooked spaces to become Fusion Cinemas that host engaging, technology-driven formats, welcome new audiences and deliver high-quality social experiences.

Supporting customers’ pursuit of Optimised Options, tomorrow’s fitness, competitive leisure and casual dining operators will adapt their offers to support their wellbeing and social needs of customers, from mood-enhancing dining to collective leisure activities.

Finally, community will be key for tomorrow’s new and evolving leisure destinations. Taking time to understand and engage with changing local demographics will inform the use, flexibility, layout, connectivity and accessibility of future leisure destinations, future-proofing them for the next generation.

“Leisure is a multifaceted and evolving sector, but one that thrives in the UK thanks to consumers’ healthy curiosity for new, shared experiences,” says Raymond.

“As we look to the decade ahead, The Future of Leisure will be informed by the creation of technologically enhanced, stimulating and memorable moments that bring people together in ways that no other sector can achieve.” WAH Nails flagship, London


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Contributors LGIM Real Assets would like to thank the following contributors:

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Thefuture of leisure - Legal & General · what’s next and what’s after that. The evolution is being played out across all types of leisure property, whether that be an out-of-town