Survey of Pub Prices January 2024

Click here to read the Survey of Pub Prices January 2024

Market activity in the pub sector became increasingly polarised in 2023.

The market for many changed following the mini budget on 23 Sept 2022. When Liz Truss became Prime Minister earlier in Sept 2022, CPI inflation had already been at 9-10% for 6 months and the Base Rate had started to increase (up 1.5% in the previous 6 months) but there was still good demand in the pub market, a shortage of supply and transactional volume was steady.

The Kwasi Kwateng mini budget, however, wasn't received well by the economic marketplace and it proved to be a turning point in the level of activity in the pub sector. Base rates increased a further 2% in the following 6 months (7 increases in 11 months), reaching and then remaining steady at 5.25% in August 23, as inflationary pressures started to ease. Not only did the cost of borrowing increase substantially but we saw a tightening of the mortgage market, making it both difficult and expensive to borrow. We saw more lending activity from the challenger banks than the High Street Banks.

The economic environment following the mini budget greatly reduced transactional activity in the pub sector. This was driven by the increased cost of capital as well as a lack of confidence in the economy.

In general terms the market polarised, on one side, cash rich buyers were still willing and able to purchase assets that met their criteria, and as a result values remained firm. On the other side buyers needing finance to acquire, found either capital was unavailable, or the cost of borrowing was prohibitive when considering market conditions and reducing economic confidence.

Furthermore there was a perception in the private market that cost pressures would result in operator distress and therefore an increase in supply, which in turn would offer greater opportunity and value. This has yet to materialise.

The activity we saw was increasingly driven by Tenanted and Franchised Pubco's. Red Oak, Trust Inns, Punch Taverns and several regional Brewers were active, as were the relatively new "franchise" (Managed Service Agreement - MSA) operators like Valiant and Inglenook, who, backed by substantial funding and with a model already proving to be very successful for concepts like Craft Union and Amber Taverns, rapidly acquired and refurbished underperforming wet led pubs.

Many of the mainstream managed operators who had been active in 2022 stepped out of the market, pausing acquisition plans in the face of concerns over cost pressure and a squeeze on disposable income. Only towards the end of the year did we see the first large food led managed house operators actively looking to acquire individual sites again.