Rising prices
Michelle Perrett delves into Fleurets' annual survey - the results are below.
The average price of a freehold freehouse has hit £544,000 - up by 39 per cent on last year - says a new report from property agent Fleurets. In its annual survey Hotels, Restaurants, Pubs and Leisure Parks, which covers the 12 months from October 1, 2003 to September 30, 2004, it reveals that the prices for freeholds are highest in London and the South while prices have risen the fastest in London, the West and the South.
To buy a freehold pub in London a licensee will have to pay on average just over £1m while in the South of the country a licensee can expect to pay an average price of £845,417.
The report says these high prices are down to pubcos, which have been the strongest buyers over the last three years, and a fall in the supply of willing sellers.
The lowest prices for freehold pubs is in the East and the Midlands, where the average price is about £350,000.
However, the agent has issued a note of caution claiming that the figures are an indication of the market and the fact that it has dealt with more company disposals this year. The average turnover of a freehold freehouse sold by Fleurets has increased from £272,000 to £299,000 - up 10 per cent.
The agent says: "This is known not to be representative of pubs as a whole and confirms that, on average, bigger, busier and more profitable pubs were sold in 2004 than in previous years."
The best value freehold pub can be found in the North and the Midlands for between 1.4 and 1.6 times annual turnover. While in London a licensee can expect to pay above twice the turnover and in the West, the South and the East this multiple exceeds 1.8.
The average price for a leasehold property across the country is just under £73,000 - an eight per cent increase on 2002.
Fleurets says that average prices around the country have been "remarkably consistent" over the year.
In the North and the Midlands, leases are remaining around the £58,000 and £61,000 mark, rising to between £80,000 and £84,000 in the traditionally expensive London.
The report says that the latest leasehold figures are slightly down and this is thought to be because there is a steady stream of new leases coming onto the market which require no initial premium on the grant of the lease. The average turnover of a leasehold pub sold by Fleurets in 2004 was £280,000.
Many of the leasehold sales on the high street this year have been from the national operators or those with failed brands, says Fleurets. Many of these sales have been in groups to encourage buyers to take some of the less profitable units along with the good ones.
Inevitably the majority of these sales have been in London with an average price of £116,000. With the corporates moving out of the market the majority of buyers have been small multiple operators looking to increase their market share.
The future
Fleurets argues that there could be more freehold properties available on the market in the next 12 months due to the uncertainty in the market. It highlights issues including the smoking ban, the Disability Discrimination Act, uncertainty on the global economy and UK interest rate rises which are all effecting the market.
It predicts that demand for freehold properties will continue to be strong especially from companies looking to expand their estate.
It believes that a business with a good turnover and net profit will achieve a strong premium regardless of whether it is free of tie or not.
Bottom end disposals (average freehold prices paid)
Prices at a glance
Definitions:
- Freehold Freehouses - Pubs sold with the benefit of accounts
- Leases - Most are pubco leases with five to 15 years unexpired, mainly tied with market rents
- Bottom End Disposals - Freehold pubs sold without the benefit of accounts. Often closed or vandalised or pubco disposals.
