With freehouses a rare commodity in the north, leasehold property prices are soaring, reports Tony Halstead
Like other regions of the UK, the north has continued to see a steady drop in the number of freehouse pubs coming on to the market over the past 12 months. While greedy pub companies continue to gobble up these meagre rations, the market has stagnated further as freehouse owners seem increasingly reluctant to part with their prized assets. This means the main activity in the pub property market has been confined largely to the leasehold sector, where new deal and assignment values have both shown good growth.
Lease deals have remained buoyant in both urban towns and rural villages as frustrated freehouse buyers turn to the next best option to acquire a pub. It means that, in general terms, northern freehouse and leasehold pub prices are on the increase as buyers chase an ever-dwindling supply of quality outlets. Freehouse pubs are changing hands, but often it's a case of owners retaining an interest in their property by leasing out the business and keeping the best of both worlds.
Call for 'open sale' of freeholds
Rodger Vickers, a partner in Sheffield-based licensed property specialist Brownhill Vickers & Platts, says freehold prices are on the rise thanks to the under-supply of suitable properties. He says there are growing demands within the industry for freehold pubs to be marketed openly and reverse a trend which has seen pubcos acquire blocks of houses without them ever being advertised. 'This would bring additional bids from either individuals or pub companies driving up prices still further, he argues.
'We will have to wait and see whether this takes hold and results in a higher proportion of good licensed property openly marketed and openly advertised once again.
'Substantial increases in demand are being noted concerning the better leasehold pubs, as those frustrated at not being able to purchase a freehold which suits their criteria are turning to good leaseholds to satisfy their demand. Once again this is resulting in rising prices, Vickers adds.
He continues: 'The market for the average leasehold shows change only by virtue of the fact that there appears to be increasing confusion about advertised asking prices in respect of houses at both ends of the market. There is a need for lessees wishing to sell a business with only moderate profits to be given the best advice.
'Advertising at figures which are substantially optimistic usually leads to killing the initial impact a newly-marketed property has. This can result in long-term damage if the market perceives that an available lease is over-priced. Even if the asking price is substantially reduced, many will not give the business a second glance, he says.
Leasehold prices still rising
Agent Christie & Co, which has offices in Newcastle, Leeds and Manchester, agrees that leasehold deals now heavily outweigh activity in the freehold sector. 'Prices for leaseholds have increased significantly over the past two or three years to such a level that the vendor of a premises can usually expect to achieve a minimum of a third of the annual net of VAT turnover of a business, says David Lee, of the company's Newcastle office. 'In some cases this can rise to approximately half the annual net of VAT turnover and most leasehold pubs are achieving offers of significant interest, he reports.
Lee says there is little evidence to suggest the new licensing laws and looming smoking restrictions in pubs have had any real effect on the demand for licensed premises.
Andrew Spencer, of the company's Leeds office, believes there has been some rationalisation within the urban pub market as bigger companies review their estates and sell off units to enable some private operators to return to the high street. He reports there is still strong activity in 'lifestyle trading areas such as the Yorkshire Dales, North Yorkshire Moors and villages surrounding prosperous trading areas such as Harrogate and York.
Pubcos churning their estates
In the north west, Sean Hartley at Christie & Co, Manchester, says the big pubcos are churning their estates, particularly in the heavily populated urban areas of Oldham, Wigan, Rochdale and Bury.
Corporate activity is also strong around Liverpool, where big managed houses offering discounted drinks are causing private and leasehold operators loss of margins. Chartered surveyor Fleurets believes the freehold pub shortage has been made more acute by the continuing trend of pub properties being converted into private accommodation.
It means the majority of free trade transactions by the company have taken place in historic freehold areas, such as the Lake District and the Dales, according to Simon Hall from the company's Leeds office. 'The more 'destination' the venue, the more 'lifestyle' the operation and the more likely you will find freehold properties.
'The lack of supply to the market has ensured that freehold sale prices have remained strong. However, the slowdown in the residential market and the increased economic uncertainty over the future has slowed down growth, he says.
Hall claims the past 12 months have seen significant increases in sale prices of the best leasehold pubs. The type of property which has seen the biggest rise is the medium-sized pub in an attractive or affluent village or countryside areas.
'These are operations with manageable turn-overs of between £4,000 and £8,000 per week, where potential operators are seeking a more lifestyle operation using equity raised from the rise in the residential property market, says Hall. But the debit side has found leasehold pubs in less affluent urban areas not seeing the same increase in demand, with prices remaining modest.
He adds: 'The leasehold pub market remains very young and isn't that well established, so understanding values of pubs is made more difficult by unrealistic expectations created by unprofessional market appraisals by some agents. He cautions that care should be taken to ensure agents act with integrity and comprehensive market knowledge in the best interests of their clients. 'Unfortunately we believe this is not always the case in the present marketplace, Hall says.
Tim Martin, of Fleurets Manchester office, reports that prices in both freehold and leasehold markets have risen steadily over the year. Again, demand is outstripping supply for freehold pubs, particularly in tourist areas, while prices in urban areas prosper in tune with the healthy residential market. Martin says prices of good quality leaseholds have been driven upwards and, while once upon a time £100,000 values were a rarity, it is now relatively common to see a lease change hands for a six figure sum.