Focus on Scotland: Property
Pub groups willing to pay higher prices for prime locations
English-based pub groups are continuing to drive the licensed property market in Scotland and are now turning to smaller businesses in the competition to expand their estates north of the border.
Freehold pubs priced at less than £300,000 are coming into the sights of the big operators, according to Stuart Ferguson at agent Christie & Co's Edinburgh office.
"These are the kind of places which used to go to first-time buyers," he said, quoting the example of the £250,000 Whip & Saddle at Duns, in rural Berwickshire, which has been the object of a fierce battle between two corporates. "Five years ago companies would not have considered it worthwhile buying pubs like this."
This has gone along with a declining demand from individual buyers as prices have risen. "Pub groups have advantages in the marketplace," explained Stuart.
"They are willing to pay higher prices because, with their buying power, they can expect higher returns from the unit."
Expansion in Scotland is coming from both the giant tenanted chains and the big managed house operators.
Suffolk-based regional brewer Greene King recently broke into the market with the purchase of Dalgety Taverns whose eight pubs are being converted into the Hungry Horse food-led brand.
Regent Inns - which already has a Walkabout and a Jongleurs Comedy Club in Glasgow - is looking for sites for its brands in cities and major towns and Noble House Leisure is reported to be scouring the country in its search for destination food-led businesses.
It recently snapped up, through Christie & Co, the Hideaway Lodge & Restaurant in Halbeath, near Dunfermline, Fife, which was on the market for £600,000 following the retirement of freetraders Ian and Shona Kinghorn.
JD Wetherspoon, which is favouring the sale and leaseback route to expansion, continues to increase its presence in the big cities and in smaller towns, most recently opening its seventh pub in Glasgow and converting a disused post office in Wick to create its most northerly outpost.
Meanwhile, Pubmaster, Enterprise Inns and the Punch Pub Company lead the way in the tenanted sector.
"Both Pubmaster and Enterprise have nailed their colours to the mast by stating that they wish to develop portfolios of around 100 pubs in Scotland," reported Brian Sheldon at Christie & Co's Glasgow office. "Punch already has about 350 outlets and is also looking to expand its estate. "Other companies including the London Inn Group and franchise chain Scottish & Newcastle Pub Enterprises are looking at units throughout Scotland with a minimum annual barrelage requirement of around 200," he added.
"All in all, while the big boys continue their dogfight it creates much competition for what is perceived to be a shrinking market. These companies have made rapid progress and at some time in the very near future the opportunities are likely to dry up. "Pubs are being taken out of the traditional owner-operator sector minimising the opportunities of re-selling. Leases and tenancies will become much more popular in the years ahead due to the lack of freehold sites - we are beginning to mirror the pub market down south."
So while there should be no shortage of vacancies for tenants and lessees in the years ahead, the Scottish freetrader, who until recently owned 80 per cent of pubs, now seems to be a threatened species.
Many are happy to sell up to a corporate buyer not only because prices are high but because the growth of the chains is increasing competition and making it tougher for the freetrader to survive.
Belhaven Brewery, however, continues to match the English invaders pub-for-pub in its rate of expansion, both on the managed and the tenanted side, and, although the proliferation of these has slowed in the past year, there is still scope for the smaller locally-based Scottish multiple.
Festival Inns, for example, recently splashed out more than £2m buying Ogstons from Voyager to give it a lucrative spot in St Andrews' student market.
"Local groups can adapt faster than big companies," said Stuart Ferguson. "They can introduce promotions without going through a huge bureaucracy and they can be more flexible."
There is still the occasional purchase by a freetrader, too. Christie & Co has lately done two deals involving traditional community locals.
The Tower Inn, in Kilwinning, Ayrshire, was bought by Margaret Bradford, who already owns another pub in the town, and Morgan's Bar in Glenboig, went to Peter Hilley and Robert Slevin.
Gordon Mair, director of Edinburgh agent Bruce & Co, believes there is also an attraction for independent operators coming up from the south, outside the city centres at least.
"Many of those who are buying through us find a better return on their investment as well as prices that are still lower than in many parts of England," he said.
"They are also attracted to Scotland by the quality of life. Couples with young families and those whose children have grown up are fulfilling an ambition to run their own inn or hotel.
"The Scottish legal system also prevents problems such as gazumping, and that's another attraction."
Pictured: the £250,000 Whip & Saddle in Berwickshire
Related articles:
Pubmaster in £7m 22-pub Scottish deal (15 July 2002)
JD Wetherspoon starts work on most northerly pub (1 July 2002)
Greene King in Highland fling (10 April 2002)
