'Wall of money' chasing freehold property

Restaurant and pub property agent Davis Coffer Lyons has claimed a 'wall of money is now chasing freehold property acquisitions in the sector. The result is likely to be a further compression in the yield that many investors are willing to accept.

Davis Coffer Lyons reports that a site in Fleet Street, London, occupied by Pret A Manger has sold for £3.75m, producing a yield of just 4.4%. Brandon Elmon, of Davis Coffer Lyons, said: 'Historic levels of yield compression are now manifesting in the leisure market.

'The wall of money chasing property shows no sign of abating, and the leisure sector is now considered a viable investment opportunity. There seems to be little evidence that yields will move out at any time in the near future. In fact, the demand we are experiencing indicates that further yield compression is likely.

Massive Pub Company has been involved in deals in the past year where private investors have bought private pub freeholds on the basis that Massive becomes the leaseholder the yield in one case was as low as 5.4%.

Investors have been happy to accept a rent of between £100,000 and £125,000 a year on freeholds pubs selling for around £2m. Massive has also been able to negotiate a share of any upward lift on freehold value on deposit in some cases. 'It works for us and we've done six in the past year, said Massive chief executive Peter Linacre.