High street to see fall in rents

The pub market is set for a large drop in rents on the high street, predicts Nigel Ball, director at property consultant Fuller Peiser.

Over the last five years the industry has witnessed intense competition from pub companies fighting to gain representation on the high street.

However, a severe reduction in the number of new openings is set to force rental values down, Mr Ball claims.

While operators such as JD Wetherspoon, SFI and Regent Inns were rapidly expanding their portfolios and competition on the high street was still strong, rental values continued to increase.

But he argues that these rental levels are now unsustainable as margins are being squeezed and over-saturation on the high street is putting pressure on the market.

The upside to this is that tenants looking for new properties will be able to push much harder for bargains. "This will result in more sensible levels of rent being paid," Mr Ball said.

The knock-on effect of this trend is already starting in the market with more operators arguing over rent reviews. "The first characteristic of the current depressed market is a lack of transactions," Mr Ball added. "This absence of open market evidence makes it more difficult for a tenant's adviser to prove the reality of the market. Equally, landlords are very reluctant to acknowledge the reality of the market, clinging on to asset values based on historical evidence.

"As a result, there is a marked increase in rent reviews being referred to dispute resolution."

His views are supported by other agents in the industry.

Last month Barry Gillham, chief executive of agent Fleurets, predicted that during 2003 rents will begin to fall as the failures of many of these high street operators, such as SFI and Old Monk, start to hit the market.

A turbulent year ahead​

The pub property sector will be dominated by the buying and selling of high street sites over the next 12 months, says a report from property consultant Colliers CRE.

In its annual Midsummer Retail Report it says the recent difficulties on the high street - which saw companies such as Old Monk and Mustard falling into receivership and the raft of operators issuing profit warnings - means that upward rent reviews are very unlikely.

Colliers CRE also claims that some landlords with high street operations may be forced to take units back from failed operators, which will see them having to reduce the rents on re-letting.

Opportunities for new developments will be few and far between until 2004, when the market should move back to a state of equilibrium, it says.