Rocketing pub prices

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Pub prices are set to continue their climb - despite the number of properties that are currently flooding the market.

Pub prices are set to continue their climb - despite the number of properties that are currently flooding the market.

National public house director Colin Wellstead, speaking at Christie & Co's annual Business Review, said the 6,000 pubs up for sale at the beginning of 2001 are unlikely to have a detrimental effect on property values.

Some 3,000 Whitbread houses plus 1,000 Bass and another 1,800 in the Wolverhampton & Dudley Breweries group make up the biggest number of pubs coming onto the market since the major brewers were forced to dispose of 11,000 outlets in the wake of the 1990 Beer Orders.

Prices fell as a result but this time around, said Wellstead, the quality of the pubs should keep values buoyant.

"Most of the stock will be sold in packages and there is still a large appetite for them," he explained. "I am confident, too, that the quality of these pubs is higher than the disposals that resulted from the Beer Orders.

"There will still be some rationalisation from the bottom of estates as companies get rid of the pubs they don't need, but the disposals won't be at the same level at they were in the early 1990s."

The deals to come in 2001 will follow a year in which more than £1bn-worth changed hands in corporate transactions, according to Christie & Co's books.

Values during the year increased by 3.7 per cent, ahead of inflation but behind house prices. In the past five years the average price of a pub has risen by 17 per cent.

The arrival of newcomers to the sector, such as the Royal Bank of Scotland which now owns more than 1,000 outlets, underlines the confidence in pubs, said Wellstead. "The only fly in the ointment is the City,". "Its less than positive view of the market has led to pub shares being under-valued and far fewer operators seeking a Stock Market listing.

"While the City is distracted by its love affair with dotcom companies - many of whose turnovers can barely match that achieved by some pubs - the pub sector continues to be in good shape."

In 2001, he predicted, companies will continue to trim their managed estates and significant numbers of pubs will be transfered to leaseholds as a result of the Whitbread and Bass sales.

"The move to tenancies will gain pace. The level of turnover at which you can run a managed house has risen considerably in recent years and many community pubs are not cost-effective as managed houses," he said.

Securitisation - the fashionable way of raising money against future income - is easier for tenanted estates, he added. "Investors like the spread of income from rents as well as beer barrelage and the quality of tenant is better these days because the quality of pubs that are being let are higher.

"Also, pubcos are not as greedy as they once were. Tenants are able to make a better living and we are seeing small multiple operators succeed by using their knowledge of a local market.

"The trend back to tenancies will continue - and that's good news for the whole industry."

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