Fleurets reports pub prices up across the board for 2014
However, Fleurets’ annual Survey of Pub Prices also shows a 28% decrease in sales volume and indicates a fractured market with regional inconsistencies.
The survey shows the average sale price of a bottom-end freehold for the year to September 2014 was £243,582 – up 12% on the year before. Fleurets said this type of sale - without accounts and invariably sold in a forced sale situation - had been the biggest influence on overall market activity and sale prices in the past six years. However, the report says the slowdown in sales from the big pubcos has changed the the balance between supply and demand. Although overall volumes were down 25%, bottom-end pub sales still accounted for 64% of all our public house transactions.
The price increase varied regionally with a 5% increase in the north and 20-25% in the south. The exception was in London & the Home Counties, which remained broadly flat, although this reflected inferior stock compared with previous years, Fleurets said.
The report said that, with the exception of a few deals, sale prices achieved for alternative uses were in line with prices achieved for continued pub use. It said there were an increasing number of deals agreed directly by the pub companies, particularly to the convenience store operators, often in joint venture arrangements.
The vast majority of buyers in this area of the market have been individuals looking to operate as a freehouse or convert to a restaurant or to a single residence. A smaller number were acquired by the expanding regional brewers and/or local multiples.
Future
On the outlook for the future, the company said: “Most of the tenanted pub companies have ended their mass sales programmes. A number of pubs will still be sold, however, we expect decisions will be based on traditional case by case estate management principles.
“That said, following the Cerberus, Hawthorn and New River package deals, pub companies may seek to improve efficiencies and the average quality of their estates, by taking advantage of the growing interest in the sector from private equity, perhaps by selling packages of tenanted pubs.
“We anticipate that banks will see the opportunity to withdraw support for some overstretched bottom-end pub companies to crystallise their positions, and they will try to achieve this in the form of small package deals.
“The average sale price of individual bottom-end pubs is likely to continue to increase, driven by the growth in residential values and reinforced by reduced supply. We anticipate that the number of properties being sold for alternative use will decline as the viability and quality of operations coming to the market improves.”
Freehouses
The average freehouse price was £726,862 – 5% higher than the average in 2007 - but Fleurets said this was a market dominated by the South. The disposal of public houses inside the M25 accounted for half of the freehouses Fleurets sold in its Southern region last year, resulting in the average sale price increasing 32% across the South, lead by the South Coast region and London & the Home Counties.
The West region saw a significant increase in activity with the volume of sales more than trebling from the previous year and the average sale prices increasing by over 50%.
The report said: “The disparity between North and South has never been more obvious. The Northern market was down on the number of transactions, down on the average sale price and down on the multiple of FMT. In contrast, the Southern regions saw a jump in average sale price and an increase in the FMT multiple to over 2x for the first time since 2008.”
Fleurets predicted an increase in the volume of freehouse transactions in the coming year with further M&A activity predicted, leading to an increase in the supply of units to the market.
Leaseholds
The average leasehold price was £50,783 with an increase of 12% in the number of tied lease transactions, making up a total of 48%. Fleurets said five out of seven of its regions saw an increase in the average sale price for leaseholds.
In the North the average sale price continued to disappoint, reducing in two out of three of Fleurets regions while the multiple of FMT remained static at 0.09x. In the South the average sale price jumped 35% but remained at a consistent multiple of FMT of 0.15x.
The North saw a higher proportion of tied lease deals than the South with Fleurets saying it reflects the disparity in the market.
'Increased demand'
On the future for the sector, Fleurets said: “Increased flexibility, transparency and better quality operations being made available on both lease and tenancy terms, both tied and free of tie, will attract increased demand in most areas, as the supply of low cost freehold pubs reduces. This will be most prevalent in the south where freehold and leasehold pub supply is lowest and economic activity and confidence stronger. This will lead to a rise in activity and the best operations will see an increase in premiums.
“In the North, the continued supply of new lettings from the Pub Co’s and from private individuals/investors will delay the re-emergence of the assignment market and slow increases in the sale prices achieved. Attractive pubs in desirable areas and economically strong regions where there is no historic over supply of pubs, will lead the way. “
The report said the impact of MRO in the pubs code was not expected to affect leasehold sale prices over the next 12 months.
