01/12/2011
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Introduction
Welcome to our annual statistics and analysis of the sale price of Public Houses. In another difficult year we have seen a continuation of many of the market conditions that have been
prevalent over the last few years. We have however, also seen some interesting developments in the market place and possibly some early signs of what lies ahead.
Basis of Statistic
This is a review, with commentary, of the deals actually conducted by Fleurets in the 12 month
period up to 30 September 2011. It is not an analysis of the movement in market value for a
fixed set of properties, as it changes every year. It is not therefore, solely a reflection on value but instead it also reflects the quantity and type of properties that have been transacted in the year.
The commentary provided on the market activity in each of the groups should be considered
properly to fully understand the meaning behind the statistics provided.
This year we have provided an additional breakdown of the data with the main figures split on a North / South basis, where North includes deals from our Leeds, Manchester and Birmingham offices and South includes deals from our London, Brighton, Bristol and Sudbury offices.
We have divided our statistics into three groups Freehold Freehouses, Bottom End Freeholds and Leaseholds.
Freehold Freehouses
These are pubs sold with the benefit of accounts. Operational and viable pubs often sold by private individuals but also by managed house operators and significantly NOT in a distressed situation.
Bottom End Freeholds
Sold without accounts, often closed, vandalised or operational under temporary management or temporary tenant. Primarily Pub Company but also Administration sales and occasional private sales. Invariably they reflect some form of forced sale situation.
Leaseholds
This group covers a wide spectrum of properties including high street bar assignments, free of tie lease assignments of all types and tied lease assignments. Lettings and under lettings have been included in this group (tied and free of tie) and quite often they reflect a negative value
due to reverse premiums being paid or sub-lettings at significantly lower rents than the passing rent.
Overview - Bottom End Freeholds
This type of property has dominated public house transaction activity for the last 3 years, with only a marginal reduction in volumes in 2011 from the peak of activity in 2010. Consistently with previous years two thirds of the transactions have been in the Northern regions.
The average sale price has declined by -11.6% in the North, although this may reflect a willingness by many operators to conclude deals on problem sites at lower prices and an increase in low quality sites coming onto the market through Administrations as opposed to sale prices fundamentally falling.
The number of pubs being sold out of the trade continues with 54% (up from 50% in 2010 and 42% in 2009) of our sales in this group being for non-pub use. The overall figure for the industry may actually be slightly higher as many Pubco's have been dealing with the more obvious alternative use sales in off-market deals to the likes of Convenience Stores and Care Homes.
The sale of large numbers of pubs by the Pubco's has resulted in large numbers of properties being released from the tied model of operation. Many have sold to private individuals for owner operation thereby increasing the total number of freehouses in the market, and many have been sold to some of the smaller regional managed house operators and brewers.
As with all sales based statistics there is some degree of time lag in built in the figures hereby reported. Many of the deals included in these statistics were concluded 6 - 12 months ago and involve properties that were put on the market 12 - 18 months ago, so they may not reflect
current market conditions.
The Year Ahead
Unless the European situation forces us into another recession or the Banks chose to withdraw support from some of the Pub Companies they are supporting, we anticipate the following for the year.
We anticipate an increase in the average sale price in the North and the South, as better quality properties come to the market and the pressure on many to sell quite as quickly eases.
Transaction volumes will remain high although at slightly lower levels than in previous years.
Despite the increased activity to identify opportunities that offer a higher alternative use value, we anticipate the increased viability of properties coming to the market will reduce the percentage of sites being sold out of the trade.
Overview - Leaseholds
The last year has seen a significant increase in activity in the market. In the previous year, assignments were few and far between and a high proportion of activity involved the under letting of failed high street units often at subsidised rental levels. The last 12 months however has seen a much higher assignment volume, with some notable deals at significant premiums, both for tied and free of tie leases.
The London regional stats are distorted by the significant deals on the Cabbage Patch, Twickenham and the Lamb & Flag, Covent Garden and this should be taken into account on a local level. The National averages however, still fairly reflect the overall market conditions.
The majority of leasehold activity has not surprisingly been in the South with 72% (up from 63%) generated in our southern offices. The average multiple of FMT also shows a significant North South divide at 7% and 17% respectively. This indicates that although leasehold pubs in the North having a much lower average value their average FMT was actually higher at £372,000.
Whilst the free of tie high street under lettings have continued to take place, they have had a reduced impact on the final averages due to the overall increase in the volume of sales of community and food based operations.
The Year Ahead
We anticipate that the leasehold market in general will continue to be challenging, occasional significant deals will happen and the wider assignment market will continue to slowly improve, especially in the South.
Overview - Freehouses
This sector of the market has continued to be very inactive. The small volume of sales has meant regional statistics are unsupported with sufficient data to provide realistic analysis. On a national scale the average sale price has increased by 27%, which is a reflection more about the quality of property being sold than the movement in prices. This is demonstrated by the increase in the average FMT of the properties sold increasing from £301,000 in 2010 to £412,000 in 2011 and the multiple of sale price to FMT falling from 1.43 to 1.32.
There has been little difference in the volume of activity on a North/South basis with a similar number of deals being completed. The difference in sale price and multiple has been influenced in the North by a couple of high value deals resulting in the average sale price increasing and the multiple of FMT falling.
A small but significant change in the transactions over the last 12 months is that an increased percentage of our freehouse sales have been by private individuals. This may reflect vendors acceptance of the market conditions and a willingness to move on with their plans regardless of the market.
The Year Ahead
It is difficult to see any significant change in the market activity in the next 12 months. Until there is greater stimulus in the economy, increases of value in the housing market and a greater willingness of Banks to lend money the freehouse market will remain relatively quiet.
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Further information or queries about the contents of this survey should be directed to
Simon Hall, Director and Head of Pubs
E. simon.hall@fleurets.com