Graham Allman, managing director, GA Select
The past year has provided a unique platform for those looking to enter the trade or grow their single unit to become a
multiple operator in 2015, with many success stories fuelling the market.
It has become apparent that the single biggest problem will be the lack of suitable, sensibly valued and priced stock that itself will lead to higher asking prices.
It is expected interest will be across all tenures but leaseholds will be the favoured right of entry into self-employment due to a low cost of entry.
The appetite for freeholds will grow as potential purchasers sell their residential properties in order to
provide substantial capital sums for deposits and
therefore a major route to asset growth.
Many major pub companies and breweries have already disposed of most of their non-core properties and will be looking to the future for new investment opportunities.
Chris Rogers, associate, Everard Cole
This year is set to be another year of change as the full implications of the market rent-only (MRO) option in the Pubs Code unravels.
At this stage, all we know is that MRO is set to “come in gradually only at certain trigger points”, including rent reviews, lease and tenancy changes, or changes in company ownership.
While the option to discuss freedom from the tie may be some time in the future, this has the potential to have a positive impact on the value of tied leases. We would be unsurprised if this doesn’t draw more people to the trade unless some form of franchise agreement or equivalent substitute is employed by the larger pub companies, which are set to be most affected.
Generally, we expect the private market sales to increase as values continue to rise in both freehold and leasehold markets.
We also expect to see the continued rise of multiple operators and super regionals selectively acquiring with increased local knowledge. Managed houses will continue to battle it out for prime sites and we expect the rate of new-build managed houses on brown and green field sites to rise as suitable going concerns become fewer.
Matt Bettesworth, director, Bettesworths
We are predicting a more buoyant licensed property market in 2015 following a reasonably strong end to 2014. There appears to be more appetite for freehold pubs and this is likely to continue with funding becoming slightly easier and general confidence building. As this trend continues, we are likely to see more competitive bidding, which should start a positive trend in growing values.
The leasehold pubs market will continue to offer great opportunities for budding entrepreneurs and operators with leasehold values remaining relatively low. However, there still remains some uncertainty regarding the future of the leasehold pub market given the recent debate over beer ties. In summary, it is apparent that the dark and stormy days of the past five or six years are now finally behind us.
Michael Easton, associate director, Jones Lang LaSalle
Last year was a transitional year for the sector and the year ahead will see the start of a revival in the private market with a different feeling to the past five years.
With individual pub company disposals expected to be simple ongoing estate management by the end of 2015, we expect replacement stock to be a mix of private and forced sales — the latter deserving a premium for profitable going concerns and the former representing better value but negative cash flow and capital expenditure required in the short term. Either way, we do expect a greater number of freehold pubs available on the open market.
Mergers and acquisitions will continue at pace, particularly in the managed house sector which remains positive for the medium term, although fresh interest in the packaged leased estates from private equity is still expected with further consolidation the order of the day.
Come the end of 2015, we might see the ‘big two’ re-enter the acquisition market albeit with group acquisitions.
Paul Davey, managing director, Davey Co
The momentum achieved at the quality end of both the freehold and premium leasehold market throughout 2014 is unlikely to falter in 2015.
Demand from emerging niche village and destination pub-restaurant and inn operators has been a particular feature of the market in the shires and we see this segment maturing in the year ahead as operators begin to achieve their targeted number of purchases.
The fragility of the economic recovery will continue to produce a marked contrast in trading — quality, competent operators will continue to be rewarded with increased growth; poor, less competent operators will continue to struggle
to survive.
There are two events that could influence the market significantly: firstly, the outcome of the issue of relinquishing the beer tie; secondly, the general election in May. The first will either prove a damp squib or could ignite the market. The second, particularly in relation to the debate over Britain and the European Union, may culminate in a much earlier in/out referendum than many expect.
Simon Hall, director and head of pubs, Fleurets
The reduced supply of individual freehold pubs from the big six pub companies, growing confidence in the economy and better trading prospects will lead to an increase in freehold pub values in 2015. This will be strongest in the south with the ripple spreading north through the year. (Unless legislation progresses on MRO that is).
We will see increased activity in the mergers and acquisitions (M&A) markets as pubcos seek to reduce the size of their tied lease estates and private equity looks for a foothold in our sector, attracted by the asset-backed investments with strong cash generation and with growth potential.
Simon Jackaman, director, Simon Jackaman Associates
There was a better feeling last year as we, for the first time in a while, saw pub values rise and banks finally show signs of funding in the leisure sector.
There is a real feeling of momentum as we start the new year and expect to see values rise, although this will be dependent on location and trade performance.
We expect to see enquiries reach pre-credit crunch levels as more buyers seek out opportunities.
These are likely to be a mix of those already in the trade looking to increase their portfolio or either move up or down the market, along with first-time buyers who have long wanted to run their own business but have been put off by market conditions in recent times.
We don’t expect to see much in the way of corporate disposals, as was the case in 2014, although we will have to wait and see how the pub companies respond to any scrapping of the beer tie.
Paul Tallentyre, pubs and bars director, Davis Coffer Lyons
We expect to see a marked increase in the number of new pub brands that will be rolling out and an expansion of established, well-funded groups.
Rental values and premiums for units requiring late-night licences and other statutory consents will increase dramatically, even beyond existing record levels.
Turnover rents will become more prevalent on the high street and non-estate properties.
The proposed change to the pub tie will have a dramatic effect on the market one way or another, with more managed pubs expected, as pubcos follow the lead set by Enterprise Inns, establishing a managed business in preparation for any change in legislation.
Pub rental levels are going to change as the market tries to pre-empt the calculation for pubs that ‘break the tie’ and how pubcos will maximise revenue.
We expect to see increased support from banks for all types of transactions and a strong year for leisure sector M&A activity, building on the high volume of transactions observed in 2014.
Stephen Taylor, managing director, Guy Simmonds
Free-of-tie private leases will continue to be in exceptional demand for this year.
We create these on behalf of shrewd retiring freeholders and private buy-to-let commercial investor clients.
Tied leases will also continue to sell extremely well, with the caveat applying that the rent applied is realistic and the business profitable.
Freeholds look certain to continue to be in high demand in respect of both profitable going concerns and also for those with potential for change of use.
Our pragmatic vendor clients fully understand that their price aspirations need to be correlated with verified turnover/profitability, and businesses must be correctly and professionally valued in the current market place in order to culminate in a sale.