The price of freehold, leasehold and bottom end pubs all increased in 2017, as demand in the market remained strong, according to Fleurets latest Survey of Pub Prices – but cost inflation could change things this year.
Combined freehold sale prices increased by 14.6% to £416,624; leasehold sale prices were up 31% to £51,980; and bottom end sale prices rose 24.5% to £271,998.
Of the freehold pubs sold, 61.5% remained as pubs – slightly down from 62.4% in 2016, with 68% remaining as pubs in the south and 55% in the north.
Simon Hall, director and head of agency at leisure property specialists Fleurets, said property transactions in the pub market had shown remarkable resilience over the past year, despite political and economic uncertainty and the added burden of recent sector legislation.
“Activity and sale prices have been driven by the increased quality of transactions with higher trading levels and decentralisation leading to premium prices being paid for the best regional assets,” he said.
However, the direction of the market in 2018 is by no means certain. Hall told MCA: “There are several headwinds for the pub market in the year ahead, most notably in respect of cost inflation and the effects of continued uncertainty over Brexit.
“If price rises reduce consumer disposable income or if uncertainty leads to more cautious consumer spending plans, this will lead to a reduction in on-sales,” he said.
“On the positive side, these factors don’t appear to be affecting trade levels at present and the positive impact of staycations and increased UK tourism from abroad, is having a positive effect.”
Other key takeouts from the report were that there were fewer but bigger portfolio deals during 2017; freehouse sales volume dropped 21.4%; and there was a growing market of private landlords.
Due to the diversity of the market, Fleurets said it was impossible to generalise, however, there were some common market characteristics. For example, tenanted pubcos continued to selectively shed underperforming sites, with the most active and creative being Ei Group, which has not only sold individual sites, but packages of investment properties, as well as expanding their managed estate, said the report.
“They have also taken great strides in offering large numbers of properties on free of tie leases – for all uses, not just for pub use,” it read. These came from the likes of Wellington Pub Company and, more recently, the Ei Group, as well as from private owners looking to retain their asset and general income rather than sell.
The reduced supply of bottom end freehold pubs has continued, which, coupled with strong demand, has led to an increase in the sale price of these properties.
Fleurets said it had also seen an increase in demand lead to high prices being paid for units in city centres and higher value towns.
In the leasehold market, the average sale price pubs jumped significantly due, in part, to a small number of high premium deals, including five leasehold assignments in the north at more than £100,000 and thirteen in the south, including two deals at more than £400,000.
Another significant change was that the better, stronger sites have seen a growth in demand, with higher premiums being paid for the best sites. These are mainly high street sites in the primary cities and the best secondary towns, which have benefitted from the overflow from an overheated London leisure market, according to Fleurets.
Market activity for package deals was dominated in 2017 by the sale of two of the three largest tenanted pub groups in the country. Heineken and Patron Capital split the Punch Taverns estate (3250 units) and Proprium Capital and C&C acquired Admiral Taverns (853 units).
“There is still an abundance of money looking for a place to invest and the freehold property market will remain in strong demand for centrally located properties for operation and for investment,” Hall told MCA.
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