Heart of gold

Pub buyers, including investors avoiding the equities market, are snapping up leaseholds and freeholds in the heart of the country. Sally Bairstow explores the Midlands' buoyant market Purchasers, both corporate and private, are chasing pubs in the heart of England with freeholds and leaseholds being in the most demand. There's an almost insatiable bank of people wanting to enter the pub industry or build their estates, according to agents inthe region. While the equities market remains uncertain, property is where people are putting their money. And bankers and finan-ciers are currently smiling favourably on the pub industry. "A good business will still be a good business and a poor business someone's opportunity," says Graham Allman, director of new business and corporate sales for property agent Guy Simmonds. He says the Midlands region has seen a proactive record of sales during the past 12 months and both freehouses and leaseholds are attracting "enormous attention" from private and corporate purchasers. He feels private clients have been very active and they tend to focus on food-driven pubs and those with multifacet income streams such as letting accommodation, and, in one case, an ice-cream shop within the business. Allman adds that the "usual suspects" are chasing freeholds with barrelages in excess of 200pa. He cites the 600-barrel Dead Poets at Holbrook near Derby, which went overnight to Leicester-based Everards, and the Royal George Inn at Cottingham, Northamptonshire, with 300 barrels, which was sold to Punch. Both were subsequently leased by their new owners. "A new format of corporate purchaser has entered the market in the form of pension fund investment," continues Allman. "These pension fund managers are buying high-quality freeholds and either lease them back to the previous owner or instruct Guy Simmonds to lease them on with a package including a new 35-year lease that is completely free of all ties. We have nine such deals going through lawyers at present within the Midlands and these are becoming a major contender to the pub companies." While competition is tough between pubcos chasing pubs, Allman says pension fund managers can "cherry pick" outlets as they are normally looking for a 10% return on capital as opposed to the 20% needed by the pubcos. Fleurets' associate, Andy Tudor echoes the view that the pub market in the Midlands is "pretty buoyant", particularly in the freehold sector because of the current low interest rates and ever-acquisitive pub companies. "There is no question that pubs that fall into the classic pubco purchase' category are in short supply. But as a consequence, most are broadening their horizons as are private individuals, many of whom see the scope in buying a lower value pub that has experienced better times, investing time and money into it, and perhaps selling on in a couple of years." Tudor believes this is especially the case with private buyers who feel "priced out" of the middle sector by hungrily-acquisitive pubcos. He says these bottom-end pubs are usually arelatively low risk and there is always a gentle trickle of brewery disposals as companies "top and tail" their estates. He highlights the new leases being offered by Fleurets' Birmingham office on behalf of Avebury Taverns. Tudor explains: "Many of these brand new lettings are available at nil premium and offer operators the chance to develop existing sales before selling on in two or three years' time at a premium for the goodwill they have built up." As the leasehold market becomes increasingly established and given the relative scarcity of freehold opportunities, leaseholds are seen as the best route for many new entrants to the trade and for licensees to progress. Andy Ross at Christie & Co's Birmingham office also notes that there are plenty of active purchasers against a backdrop of few freeholds coming up. He says with the current state of the equities market, private buyers are seeing pubs as a good investment and, while they may not want to run them themselves, are putting their money into the properties. "The market is looking good at the moment," Ross explains. "There are a lot of purchasers out there ­ from private investors to the corporates looking to build up their estates." From the vendors' point of view, Ross adds, it's good news as they are often realising sales close to asking prices. While the market is so buoyant, with financiers happy and confident to invest in the pub property world, private freeholders are finding that they can take a well-earned retirement byleasing out their pubs and then benefiting from the rental income stream. Likewise, Midlands and Home Counties-based Fred Barrett & Son says it has a healthy client base with people applying daily to its lists. The 125-year-old family firm says the cheaper end of the market is slowly going and average tenancies are in the£15-£18,000 bracket and up to £25,000 to £30,000 for a good inventory and reasonable level of stock. Private tenancies that are free of tie are proving popular. Partner at Sidney Phillips, Keith Cawte says the shortage of good freehouses on the market means that whenever they do come up for sale, they are being snapped up by the pubcos and that this demand is fuelling prices. Leaseholds that are free of tie are also sought after. Looking at rural pubs, Cawte says the main problem is that often there is just not enough trade in the village, so the inns need to be destination pubs offering food. For that reason, they tend to appeal to buyers with a catering background. He cites the hot spots as those areas with a good student population. Birmingham and Nottingham are obvious examples. "Prices have definitely been increasing. As long as interest rates are low and there's a scarcity of good properties, I see this continuing," Cawte explains. One area that has suffered is the competitive high-street market because operators have taken the drinks discounting route to attract customers, and then have to swallow the costs of their profit cutting. But this is not exclusive to the Midlands as Tudor explains: "It must be remembered that some of these high-street units are still far and away the busiest outlets in their respective towns. "Whilst we suspect there may still be further consolidation in this sector of the market in the coming years, we also anticipate a number of exciting opportunities to arise for entrepreneurial individuals and companies.