Pub rental values are still being hit by the economic decline that began in 2007 and it’s difficult to predict when an uplift may occur.
That’s according to Fleurets’ new Pub Rental Survey, which points to rents being flat or in decline - or, at best, a modest increase - in most UK regions in 2010 against 2009.
The traditional pub sector in London's West End is the only category to enjoy a significant uplift in the past year, up 5.11%, according to the survey, which looks at A4 high street bars and traditional free-of-tie pubs.
Fleurets director David Sutcliffe said: “During the time that Fleurets has produced the rental survey [26 years], we have experienced three official recessions. However, the current prolonged economic difficulties are arguably the worst we have witnessed during this period.
“What started in late 2007 is still with us four years later and still having an impact on rental values. Given the current Government spending cuts, rising taxes and persistent inflation, it is difficult to predict when we might start to see an uplift commencing.”
Sutcliffe said that current environment remains “relatively quiet” - and will continue to do so for the foreseeable future - with pub companies disposing bottom end sites and high street bar operators either consolidating or acquiring already fitted out units.
However, he predicted a possible uplift in rental values once positive results from major managed pub companies filter through to the property market. However, “this may be some time away”.
Sutcliffe also pointed to the relatively low number of rent reviews.
“In addition, we are also seeing some of the larger corporate operators, particularly JD Wetherspoon, restructuring their leases to replace rent reviews with fixed uplifts.
“Most rent reviews currently being settled are ones that have been outstanding for a number of years; in some case even longer.”
He added: “The disparity between landlord’s aspirations and tenant’s ability to pay remains a continuing theme. There are however, inevitable hotspots where rental growth has been witnessed, particularly in the London areas.”
High street bars
Among high street bars, modest increases in rent were experienced in just two of the four regions outside London in 2010 against 2009. Rents increased 2.1% on 2009 in the north, up to £111,443, while in the Midlands they were up 0.54% to £106,945. Elsewhere, rents declined by 1.91% in the south east (to £102,601) and by 0.85% in south west and Wales (£111,142).
Fleurets said there is evidence of re-let properties having rents below historic levels in the regions, and limited evidence of new lettings during the past 12 months. Across all four regions, rental rises have been lower than inflation across the past five years (1.4% in south east, 3% in the Midlands and 5.5% in the north, with the south west and Wales seeing rents decline by 2.1%).
Rents declined in all three regions of the capital in 2010 against 2009: by 1.16% in the West End (£228,444), 1.19% in the City (£165,399) and 2.45% in outer London (£113,047).
Since 2005, rents have increased by 10% in the West End, 11% in the City and 5% in outer London.
Sutcliffe pointed to the “continued desire from investors to secure high street investments”, highlighting the merger of Town & City as an example, and said there’s been ”strong interest” in the Slug & Lettuce sites that Fleurets is marketing. He also highlighted the continued expansion among other fast-growing companies such as Revolution, with its Revolucion de Cuba brand, and the likes of Loungers and No Saints.
Traditional free of tie pubs
Average rent in traditional free-of-tie pubs in London’s West End reached £95,716 - up 5.11% on 2009 and a rise of 22% on 2005.
Elsewhere in the capital, rents were in slight year-on-year decline. They fell 1.04% in the City to £71,551, while outer London experienced a decline of 0.99% to £62,811. Across the five years, rents in these two regions increased by 12% and 17% respectively.
The fastest year-on-year decline was in the south east, where rental prices fell 11.21% to £51,630 and are now at 2007 levels. Across the five years rents in the region increased 9.7%.
Rental growth declined 4.8% in the north over the past five years and reached £39,442 in 2010. The region saw rental values fall 1.28% in the past year.
In contrast, the Midlands saw the highest rental increase over five years: 19.5%. Rents there reached £47,088 in 2010, up 1.73% on 2009. The south west and Wales saw rents increase 9% to £48,932 across the five years and by 0.67% on 2009.
Sutcliffe said: “There has been limited rental growth within the free-of-tie traditional pubs, although we are starting to see a small increase in the number of properties being made available on these agreements
“It is likely that we will see the impact of these lettings come through in future years. There has been evidence of new lettings, which may demonstrate a willingness for people to still take leases, as they remain a low cost entry into the pub industry.”
He said Fleurets has been working with Criterion Asset Management, which runs Wellington’s free-of-tie pub estate, to secure tenants for a number of its sites.
