The pubs code creates new opportunities for the pub sector, according to the latest market overview from CBRE.
The report shows that all property initial yield was up 5.16% in Q4, compared with 5.05% in the previous quarter.
London corporate prime pub yield remained at 4%, London independent and regional corporate prime pub yield stayed at 5.25%, while regional independent pub yield remained at 10%.
The report stated: “Pubcos are looking at their assets as real estate as well as brewery taps. They are increasingly letting units out on commercial leases and to non-industry tenants. The risk-adjusted yield is significantly higher than many other property sectors.
“As the major pubcos look to trim their estates, investors are ready to step in. However, the financing structures of many pubcos prevent this happening quickly. With high levels of securitised debt with first call on the freehold, new investors need to be both bold and imaginative to release the real estate opportunity.
“Tenants opting for market rents will create a new opportunity. The Market Rent Option (MRO) will take hold. This allows tenants to free themselves from the ‘beer tie’ in return for an open-market rent. As a result, many of the leased and tenanted pubcos will (reluctantly) begin to build more conventional portfolios of rented pubs providing opportunities for specialist investors who understand the sector.”
Simon Johnson, corporate advisory, pubs and leisure at CBRE, said: “We still believe there is a significant opportunity for entrepreneurial operators to take packages of such pubs and with a smaller portfolio, a flexible offer and management approach, and sophisticated and targeted capital spending, get returns well ahead of the market.
“We have seen that approach work in pubs and retail agreement arrangements and we expect others to follow in the smaller management segment.”
He added: “We note many companies have started once again to point towards their ‘wet’ credentials as the casual dining market and, by implication, the pub food market has seen some slowing in the face of increased competition.
Enterprise Inns has actively removed food from some of its pubs to move them into its Craft Union division and we continue to note the desire of Marston’s to add another regional brewer to its portfolio.
While it’s too early to call a turn in on-trade beer volumes, we do see more traditional wet models are seeing signs of life – and we believe the leased and tenanted pubs may be best placed to benefit.”
