Decelerating Distress in Healthcare and Hospitality

The TMA was delighted to welcome members and guests to an evening of insightful commentary provided by Colliers on the key issues affecting the healthcare and hotel sectors.

The session featured outstanding speakers, including:

• Colliers’ Chief Economist, Dr Walter Boettcher;
• Head of Advisory & Restructuring, Nick Hammond; and
• a panel of Colliers’ experts in the healthcare, hotel, and debt advisory sectors, namely:
  • Fergus Forsyth, Healthcare Capital Markets;
  • Deidre George, Hotel Asset Management; and
  • Amy Griffiths, Debt Advisory.

Key Takeaways:

• Macroeconomic Overview: Walter Boettcher provided a comprehensive economic outlook, examining company failure rates, inflationary pressures, and the impacts of rising interest rates. He noted that while some input costs, such as energy and materials, are stabilising, mortgage inflation remains high, and the restrictive monetary environment will persist for the near future. Key forecasts, such as the reduction in the UK bank rate, were discussed, alongside trends in labour markets and business taxes. The UK bank rate is expected to continue falling, especially to support the economy as the UK government tightens fiscal policy. Barring any new global calamities, Colliers sees the UK bank rate finishing the year at 4.50% and falling further to 3.25% by the end of 2025. Over the long term the UK bank rate may stabilise at between 2.0% and 2.5%. Looking forward to the October budget, Walter foresees difficult decisions for a new Labour Government who need to raise funds, to plug funding shortfalls. In his view, significant increases in corporation tax and non-domestic rates is possible but less likely than pension allowances reform, capital gains tax rises and tax rises associated with discouraging use of hyrdocarbons. The Green agenda should prove to be a net beneficiary.
• Healthcare Sector Insights: Fergus shared his insights on the healthcare sector, highlighting the resilience of high-end healthcare/wellness brands despite low levels of discretionary spending, and ongoing interest in the Harley Street Medical area, despite some distress emerging with the mid-tier operators. The labour shortage remains a critical issue in the sector, compounded by regulatory challenges such as the Care Quality Commission (CQC) ratings. These factors continue to influence funding and acquisition activity in the market.

• Hotel Sector Developments: Deirdre led the discussion on the hotel sector, noting that while the economic environment has been challenging, hoteliers continue to show resilience. There is a growing trend toward mixed-use developments, and hotels are diversifying their brand offerings to appeal to a broader range of guests. Corporate events have yet to return to pre-pandemic levels, and while there’s a decrease in corporate travel, the demand for longer, combined business and leisure trips is increasing.

• Debt and Refinancing: Amy, from the Debt aAvisory team, discussed the ongoing challenges posed by the Coronavirus Business Interruption Loan Scheme (CBILS). With rising interest rates and increasing debt-servicing costs, many businesses are struggling to manage these loans. Amy emphasised the importance of robust business plans and debt restructuring as key strategies for managing financial distress in the current environment.

In both sectors the panel agreed that the operators winning in the market are those:

• In a good location;
• Selling good products and services;
• With strong management working in partnership with lenders and key stakeholders; and
• With a clear business strategy.

Moderating the discussion, Nick Hammond commented: “The Healthcare and Hospitality sectors continue to perform resiliently despite several headwinds. Factors such as staffing, input cost inflation, and debt obligations remain persistent challenges for many businesses, exacerbated by increased interest rates and a reduction in discretionary spending. CQC registration issues are also having a troubling impact on many healthcare businesses.

“Those with well-located assets and the ability to invest in capex while maintaining healthy working capital are managing these headwinds. As ever, any business which has concerns over its asset management plans or debt servicing obligations is encouraged to seek early engagement with its stakeholders and advisors.”

The seminar provided an excellent platform to discuss the significant challenges facing the healthcare and hotel sectors. The content was rich with actionable insights and expert analysis, highlighting opportunities for operators to capitalise on distress situations in both sectors. The panellists’ in-depth knowledge and thoughtful perspectives made this a highly valuable event for anyone navigating insolvency in these industries.