Neil Morgan: Price growth sees north/south undivided

25-Jul-2013 - Last updated on 26-Jul-2013 at 10:43 GMT

Morgan: "As the quality of pubs improve, so by osmosis will the values of pubs, along with the sale prices they achieve"

A lot has been written, said and debated about the north/south property divide in recent times — particularly in relation to the housing market. Yet, the discussion hasn’t been limited to residential premises — indeed, the north/south divide in the pub property market has been a matter of conjecture in the pages of the PMA over recent issues.

It can come as no surprise that there is a division in property values — even in the pub sector. In fact, I’d go one stage further and suggest that the value gap has become a question of London versus the rest of the UK.

But, optimistically, there is something on which the north and south are united — that average sales prices for pubs are increasing across the board.
Some basic research undertaken by Christie+Co has indicated a significant increase in average sales prices for freehold pubs in the year to July 2013.

In London, average freehold sales prices have increased 10% or so over the corresponding period to July 2012 to an average price around £770,000.
At the same time average sale prices for freehold pubs in the UK regions have increased by 5% to around £250,000.

It’d be parochial to think this is an indicator of a recovery of the wider economy, but as an indicator of trends in the pub sector itself, our figures are far more significant.

Step-change

Christie+Co has for many years recorded the closure rate of pubs in the UK — back in 2000 I suggested that some 10,000 pubs needed to close to make the sector leaner and more in tune with consumer demand. Around 7,500 pubs have closed since that time.

Although this suggests that some 2,500 pubs still need to close, it may be time to revise this number, or at least the rate at which these pubs should close. In the intervening years we’ve seen the disposal by the major pub groups of many pubs from the bottom-end of their portfolios, as they seek to increase the quality of their product.

Today, as customers increasingly see the trip to the pub as a one-stop destination for a food and drink-led night out, we’ve seen a step-change in the pub offering.

And as the quality improves, so by osmosis will the values of pubs, along with the sale prices they achieve. Of course, London will out-pace the regions, but our research suggests that where there is quality, a realistic and, now, higher sale price will follow.

Rises in average sale prices are, therefore, not merely an indicator of a tentative economic recovery, but they are also symptomatic of a general improvement in the quality of pub estate.

And that’s good news — not just for operators and investors, but also for pub customers looking to slake their thirst in this glorious summer.

Neil Morgan is director and head of pubs at Christie+Co