More than 500 freehold pubs were sold in 2023, the data showed, 34% of which were sold for alternative use and no longer operate as pubs.
Almost half (45%) of freehouse sales during 2023 were to individual or small independent buyers with 55% going to corporate operators and developers.
Of the freehold sites sold 43% became residential while others morphed into retail or hotel firms with some properties cited as having changed to “community use”.
Though the report stated 66% of venues were sold for continued pub use, with 75% of sales in the south remaining as pubs compared with 61% in the north.
However, the total number of pubs was estimated to have stood at 45,200 at the end of 2023, a reduction of 600 over the course of the year, according to figures from the British Beer & Pub Association (BBPA) cited in the report.
Moreover, the total number of pubs were also expected to “continue to decline” over the next 12-months with one of the biggest “burdens” impacting pub’s viability cited as wage costs, according to the report.
Further analysis of the report by The Morning Advertiser revealed the average cost of a freehold pub in the UK stood at £550,000 last year, a decrease of almost £150k compared to 2022.
Sparked into life
The start of 2023 saw a lack of portfolio transactions of any size, Fleurets said, with small deals completed by FB Taverns, Young’s and Red Oak Taverns.
“During the year, a number of larger portfolios were known to be available, however, initial levels of appetite didn’t appear to reach vendors expectations and disposal plans had to be put on hold.
“It wasn’t until the end of the year that the market sparked into life with the £162m acquisition of City Pub Co by Youngs.
“Also, towards the very end of the year a deal was agreed for Apollo Global Management to buy The Restaurant Group for a reported enterprise value of £701m”, the report detailed.
Fleurets head of agency north Simon Hall added the “economic environment” following last year’s mini budget “greatly reduced” transactional activity in the pub sector, driven by the increased cost of capital as well as a “lack of confidence” in the economy.
“In general terms the market polarised, on one side, cash rich buyers were still willing and able to purchase assets that met their criteria, and as a result values remained firm.
“On the other side buyers needing finance to acquire, found either capital was unavailable, or the cost of borrowing was prohibitive when considering market conditions and reducing economic confidence.
“Furthermore, there was a perception in the private market that cost pressures would result in operator distress and therefore an increase in supply, which in turn would offer greater opportunity and value. This has yet to materialise”, he continued.
Hall added activity within the sector in 2023 was largely driven by tenanted and franchised pubcos, notably Red Oak Taverns, Trust Inns, and Punch Taverns.
Economic difficulty
Managed Service Agreement (MSA) operators, such as Valiant and Inglenook, were also active, Hall continued, backed by “substantial funding” and a “proven, successful model” for concepts like Craft Union and Amber Taverns, rapidly acquired and refurbished underperforming wet led pubs.
In addition, many “mainstream operators” who had been active in 2022 “stepped out of the market” and paused acquisition plans due to cost pressures, according to Hall.
Looking ahead, Fleurets also predicted an increase in selective demand for specific opportunities as well as a rise in the number of unprofitable or low profit pubs in 2024 and a continued “squeeze” on consumer disposable incomes.
However, the report added not all predictions were “negative”, with a reduction in inflation and interest rates also expected, resulting in increased consumer confidence in H2.
It said: “Pubs have always performed consistently well in the face of economic difficulty with consumers opting to retain their pub visits, often at the expense of higher ticket items.
“Opportunities exist, and innovation will succeed. It is likely to be the companies who are well funded and well established that are able to take advantage.
“More individual transactions will take place off market, especially where good quality opportunities arise.
“Unless banks take a more hard-line view on distressed debt situations, Fleurets do not anticipate transaction volumes will materially increase in 2024.”
