Magnetic north

It's a seller's market in the north withpub prices high and offers on tap.But, as Tony Halstead reports, more vendors are keeping a slice of the pie with lease-back options The northern pub property market remains in buoyant mood with prices of both leaseholds and freeholds at their highest level for years. Sale prices of quality "way of life" pubs are achieving up to three times their annual turnover while location-drive leased houses can often demand as much as half the business turnover as a premium. Property agents across the region report exceptionally strong business and many are enjoying their busiest year for some time. But there are now the first signs that the boom could soon be slowing down thanks to interestrate rises, difficulties in the economy and the prospect of higher pub running costs due to thenew Licensing Act. Currently, however, it's all action, with a number of trends emerging to bring extra interest and new dimensions to the market. Sheffield-based firm of chartered surveyors and valuers Brownill Vickers & Platts says that although many pub businesses have enjoyed only a modest period of trading this summer, demand for freehold and leased pubs has not diminished. "There remains strong demand for good units in the right location with freeholds in the north achieving good levels of profitability with those marketed at the right price sold inside a month," sayspartner Martin Nicholson. "Good-quality leaseholds can also be sold relatively quickly with the only thing holding up a sale being when accounts produced were not as good as anticipated." But there have been negatives. Nicholson says there is evidence of "creeping unprofessionalism" infiltrating the pub property market with some agents eager to secure a property listing at almost any price and placing ridiculously high values that could never be achieved. He says one lease in the north was openly marketed by a firm of agents for £150,000 with a final figure of £90,000 eventually agreed. "There is a direct relationship for all businesses between turnover, profitability and the price paid, and lessees need to realise that to obtain the best price, good accounts have to back up the figure asked. "In this case, the fact that countless numbers of potentially interested parties were lost due to the price should have caused concern for the vendor," he says. David Lee, associate director at the Newcastle office of Christie & Co, says the still strong economic climate is a major factor with most pubs achieving multiple numbers of offers. "As a result of the dwindling number of freeholds and many home owners having considerable equity in their residential property, prices of pubs are at their highest levels for years," he explains. Tim Martin, of the Manchester office of chartered surveyors Fleurets, says continued buying of freehouses by the pub companies has made the sector difficult and the leasehold sector has prospered as a result. "It is fair to say that given the right guidance, the north still represents excellent value for publicans and investors alike. "We have also noted a sharp increase in the number of managed houses converting to leasehold sites with operators keen to maximise the potential of the outlet," he says. Leeds, the boom city of the north, has largely escaped the worst effects of the meltdown in the UK high street pub and bar market. Its reputation as a cosmopolitan city with a vibrant nightlife is well deserved and it has continued to prosper thanks to the arrival of niche operators taking over properties released by the big high street pubcos. Many have chosen to sell, resulting in an over- supply of properties. This has enabled new, smaller operators to take advantage of site values which have fallen sharply over the past two years. Fleurets says the city's Greek Street is typical of what has happened in a number of high streets. One of the prime circuits in Leeds, close to the business quarter of the city, Greek Street has seen a number of new operators taking over venues from well-known high street names. Names such as Monono, Living Room and Prohibition are justthree bars opened up on sites formerly run by national companies over the past 18 months. "It seems the trouble in the high street market has led to the availability of sites, which has opened up the market to new bar and restaurant operators," says Simon Hall of Fleurets' Leeds office. "But there are early signs that the decline in the high street market is finally starting to slow with various cautiously positive comments coming from both operators and brokers." Sale and lease-back is becoming an increasingly popular way for free traders to cash in on their asset and still retain a healthy income from the business, which in many cases has taken years to develop. Pub owners are selling their property and business for good returns but many elect to continue as tenants or lessees of the new owners. Other owners retain the freehold but lease the business to new licensees, often free of tie, ensuring a handy income for them. "In many cases these proprietors have seen their other investments, such as pensions, fall but are opting for the chance to get a very good return of between 8 and 10% per annum ­ roughly double what you would expect to receive by putting the proceeds of a sale into the bank," says Martin Nicholson Brownill Vickers & Platts. Agents across the region have concluded a number of spectacular deals over the past year. One such notable sale was that presided overby Brownill Vickers & Platts; a disused club premises changed hands for a staggering sum in excess of £850,000. The Non Political Club, on the busy Ecclesall Road in Sheffield, was purchased by developers who plan to demolish it to make way for A3/restaurant use with first-floor apartments. Brownill Vickers & Platts says there was almost a "buying frenzy" with a rush of purchasers keen to get hold of the property. Elsewhere, Fleurets is marketing the picturesque New Inn at Thornton-le-Dale near Pickering, close to the North Yorkshire Moors National Park. The leasehold and contents of the business, which has a turnover of £310,000 net of VAT, can be purchased for £75,000 plus stock at valuation. Fleurets has also sold the Coachman Inn at Snainton, midway between Pickering and Scarborough. New owners Helen and Roger Gorman have injected a new lease of life into the business since taking over in May. Another deal being negotiated by Fleurets involves the leasehold sale of the Yew Tree at Preston in Lancashire. The lease and contents is availablefor £160,000 plus stock at valuation on a business currently turning over £600,000 net of VAT.