Majority of free-of-tie rents up in capital and Midlands

Figures from the property agent show that rents of free-of-tie (FOT) pubs in London increased by an average of 20% to £132,356, between 2011 and 2013, with 84% of those outlets reviewed seeing an increase in valuation.

Rents of FOT pubs in the Midlands also increased by an average of 20% to £55,117, with 72% of those reviewed seeing a value increase. However, 73% of tied pubs in the Midlands saw a decrease in rent, with the average rent of tied pubs in the region falling 19% to £46,418.

The figures are less dramatic for pubs in the north, where 80% of FOT pub rent reviews resulted in no change. Of the remaining 20%, the average rent increased by 25% to £82,324.

Tied rents​

Reviews of tied properties produced a varied picture, with pubs in London and the north having a higher average rent in 2013 compared to 2011, while there was a drop in rent in the Midlands, south and west.

The statistics (see table below) are based on rent reviews by Fleurets between 2011 and 2013.

In the survey, the group warned there can be difficulties when comparing rents of tied leases.

“These have to be considered with a degree of understanding and caution,” it said. “With the recession, many pub companies and brewers, in an attempt to support their tenants, have provided enhanced wholesale discounts. Historically, many leases were let with discounts in the region of £40 per barrel.”

The company urged prospective tenants to carefully consider the terms of a new letting or rental review settlement, adding that landlords and surveyors have to be mindful of the difficulty in dealing with reviews where no trading or barrelage information is available.

'Lack of transparency'​

It claimed many new lettings lack transparency where the tenant enjoys a reverse premium with rent-free periods or landlords contribute to fit-out costs in exchange for a higher rent.

“A tied lease may look like having a high rent compared to a FOT lease. However, incumbent in the deal is a trade discount and marketing and business support, some of which is unquantifiable,” the company said.

“A new letting may look like a very soft rent. But the tenant may have committed to undertake major investment at his own expense thus saving the landlord from spending its own money.”

Fleurets added that the improving economy means there will be an increase in demand for people wanting to enter the pub market via the leasehold route.

It said: “This may have the longer-term impact of pushing rents up or increasing premiums. In the short term, though, this demand is likely to take up the shortfall in the number of pubs available to rent.”