2017 predictions
2017 predictions: Fleurets forecasts one more pubco exit from tied lease model
The licensed property agency believes that Heineken's proposed acquisition of 1,900 Punch pubs shows a new level of confidence in the sector.
It said: "With the Heineken/Patron Capital Advisers offer to purchase [a package] of Punch pubs signalling a new level of confidence in the pub sector, we anticipate the sector will prove sufficiently attractive for others to proceed with plans to invest in the UK pub market."
"As pressures on ROCE (return on capital employed) increase following the first few request claims for the market-rent-only (MRO) option, the conditions will be in place for at least one other tenanted pub company to exit the tied lease operating model."
Operators to streamline
The agency also argued that greater "rationalisation" will be seen on the high street from both pub and restaurant operators.
"With the bigger operators seeking to shed underperforming sites, there will be great opportunities for smaller multiples to expand benefiting from greater flexibility of operation, style and control.
"The same will be seen in the restaurant market as mature brands strip out weaker sites thereby giving the opportunity for others to increase their foothold in the fast-casual market sector. Unfortunately many of these deals will leave an ongoing rent liability for the exiting operator as market rent can sit lower than the passing rent in many non-prime locations."
Business rates burden
Fleurets, however, had a word of caution for the market going into 2017 – with a warning that financially viable operations could be under threat due to an increase in both the national living wage and business rates.
"The ever increasing tax burden on public houses, which in the coming year will focus around the living wage and business rates increases, will push more of the 3rd quartile (currently viable) operations into the 4th quartile (mainly unviable) operations," the company's end-of-year statement said.
"Increased investment in new-build operations or major capex schemes in the biggest managed houses and best tenanted houses, will also take market share. This will increase the pressure on the under-invested tenanted and freehouse operations, widening the divide between the good and the poor. Inevitably, this will lead to further closures in time."
