Bottom-end freehold pub sales rise 16%, leases down 15%, says Fleurets

The average sale price of bottom-end freehold pubs across the UK increased 16% in the year to 30 September, while the average sale price of freehold freehouses climbed 17%.

That's according to the latest survey of pub prices by property agent Fleurets, which also found that the average sale price of leaseholds declined 15%.

The survey found that the average sale price of bottom-end freehold pubs reached £217,232 during the year, with prices in the north climbing 18% to £153,992 and in the south by 8% to £277,249. The average sale price in London climbed 25%, while bottom-end freeholds accounted for two thirds of all pub transactions. 49% of sales were for less than £200,000 and 48% of sales were for non-pub use.

The average sale price of leasehold pubs fell to £39,736 during the year, with prices in the north falling 18% to £21,263 and in the south by 5% to £52,313. 61% of transactions took place in the south, with 37% tied lease transactions and 63% free of tie over the 12 months.

The average sale price of freehold freehouses climbed to £639,817, with pub prices in the north falling by 9% to £564,286, while those in the south increased by 47% to £670,919, although this was exaggerated by a number of high value sales for alternative use in the London area.

The report said that the limited volume of freehold freehouse transactions continued. It found that average fair maintainable turnover remained steady at £408,000, with 71% of freehold transactions occurring in the south, while 35% of freehouses were sold for non-pub use. Multiple of FMT was found to be 30% higher in the south than in the north.

Simon Hall, director & head of pubs at Fleurets, said: “This type of bottom end freehold transaction, ie without accounts and invariably in a ‘forced sale’ scenario, has continued to dominate market activity. Overall volume is down by a third compared to 2011 but these sales still account for two-thirds of all public house transactions with a larger proportion (58%) being undertaken in the north (down from 66% in 2011).

“The average sale price has increased by 16% nationally, split +18% in the north and +8% in the south. This reflects the improved quality of operations coming to the market (particularly in the north). This is demonstrated by the higher level of fair maintainable trade (FMT), which is up 11.3% on last year as a result of pub companies having largely sold off the worst of their estates over the last three years or so. The average sale price is slightly reduced from the average for just pubco sales, due to the effect of lower quality sites coming to the market through administration situations.

“The number of pubs being sold out of the trade continues, but at a slower rate, with 48% of bottom end freehold pubs being sold for alternative use compared to 54% last year and 50% in 2010. The most common alternative use is residential conversion, with 52% of pubs sold out of the trade being for residential use, 14% for restaurant, 14% for retail and 4% each for convenience stores and offices.”

Hall said that buyers of these properties have largely been individuals for continued operation, conversion to alternative uses or development. There are a small but notable number of sites being sold to regional brewers and regional/local multiples, such as Amber Taverns and Bold Pub Company in the north.

He said: “We anticipate a continuation of the bottom end sales program by the pub companies, albeit at lower numbers. These will be supplemented by disposals via administration situations. Average sale prices are likely to continue to increase as the supply side of the market slows and the average quality of the properties coming to the market increases.

“We anticipate that the number of properties being sold for alternative use will continue to decline as the operations coming to the market increase in their viability for continued pub operation.”

The report said that the leasehold assignment, subletting and lettings market had continued to experience difficult conditions.

Hall said: “Leasehold transactions in the south, despite showing a 5% decline in the average sale price, probably reflect stronger market conditions than last year as the 2011 comparables included two significant high value leasehold assignments in London, which have not been repeated in 2012.

"This is confirmed by volume numbers, which demonstrate that the transactions in the south accounted for 61% of overall leasehold public house deals. The leasehold market in the north has mainly comprised of subletting at Nil Premiums and new lettings. Assignment premiums do happen but they have been few and far between.

"There continues to be significant availability of new leases on the market, both on a tied and free of tie basis. The majority of new lettings from the pub companies appear to be on a tenancy arrangement as opposed to a longer term lease, however, the flexibility now provided by many of these agreements, with more affordable ingoings and rents, are satisfying a good proportion of the demand. Premiums will therefore continue to be under pressure and apart from the best properties in the best locations, significant premiums are unlikely to be seen on a regular basis.

“Attractive pubs in countryside areas and economically strong regions where there is no historic over supply of pubs, such as the south east, will lead the way and will see any increase in value that is likely to occur. Average sale prices in the north will continue to represent little more than fixtures and fittings value.”

The report said that the freehouse market had continued to be relatively inactive.

Hall said: “Owners of operational and viable public house businesses, whether corporate or private, have invariably elected to continue to own/operate the business rather than sell. The relatively low sale prices achievable are partly a result of the difficulty in arranging finance and particularly the level of cash investment required by potential purchasers.

“Sales in the year to September 2012 reflected a 17% increase in the average sale price mainly generated by an increase in the multiple of fair maintainable trade (FMT) as apposed to an increase in the estimated trading potential of the business. This suggests that it is not a case of better quality operations coming to the market but it is more a case of an increase in the value attributable to a site by purchasers.

“The south of England has seen a significant increase in the volume of activity with two-thirds of freehouse sales being achieved in the southern half of the country. Overall transactions have doubled in volume terms over the last 12 months, albeit from a low base.”

Fleurets said that it anticipated seeing a continued increase in the volume of transactions being led by the south of England as confidence in trading potential and acceptance of values by vendors becomes more prevalent.

Hall said: “Transactions will be driven by private vendors who have increased in number over the last three years due to the pub company sell off. We are however, already seeing signs that corporate operators are considering the time to be right for the disposal of managed house operations and we anticipate that administrators and banks holding on to distressed assets as operational entities will start to realise their positions and push properties on to the market in open market sales (as opposed to forced sale situations)."