Right place, right time
The London and south-east pub-property market graphically underlines a widening north-south divide
in the UK, says Tony Halstead
No other region in the country comes anywhere near matching the freehold and leasehold prices currently being demanded for pubs in London and the Home Counties.
Prices for leasehold pubs in this region currently see buyers forking out an average of £95,000 to secure a business, while some affluent areas regularly see leases changing hands for £110,000 or more.
Property agents agree that the new driver of these soaring prices is the pub-food
market, which is still growing at an almost runaway rate.
Growing numbers of pub-food operators are beginning to snap up leasehold pubs which they might never have considered as a business growth option five years ago.
Beer-tie restrictions no longer present a barrier to buying a business as long as wine and spirits can be purchased by an operator on the open market.
Draught-beer sales typically represent only 10% to 15% of a pub's overall turnover, leaving food, wine and spirits with plenty of scope for licensees to achieve high sales margins.
"Food is the most talked-about and arguably the main driver in the South-East," says associate at chartered surveyors Fleurets London office, Cameron Campbell.
"Successful operators looking to build a business understand that customers' expectations are high, with quality ambience and value for money at the heart of the trade's success," says Campbell.
Interestingly, it is not just individual entrepreneur operators who are taking a new, broader look at the market.
"Smaller pub companies and multiple operators previously focused on acquiring a completely free-of-tie leasehold. But now that food sales are the driving turnover, we are seeing a seismic shift in numbers acquiring units on a part-tie basis," Campbell says.
As the 1 July smoking ban looms, everyone within the pub property market agrees that food growth will escalate and premises able to expand their catering facilities will become sought-after venues when put up for sale.
An increasing number of south-east properties are achieving huge interest when they appear on the market.
Associate at Fleurets southern office Alan Millard revealed that one property in Eastbourne produced no less than 700 enquiries, while a freehouse in Worthing was sold off an asking price of £750,000.
Millard's examples illustrate the buoyancy of the market: 50% of leasehold transactions from his office realise premiums in excess of £100,000, with five leased pubs recently changing hands for more than £200,000.
One free-of-tie lease, the Halfway Bridge at Lodsworth near Petworth, West Sussex, was sold for £250,000 after attracting at least 200 enquiries.
"For the first year on record, the average price paid for a leasehold public house within our Brighton office boundaries exceeded £100,000," Millard says.
Relentless movement
Rising value of all types of pub property and operators' relentless move towards the south-east food market are confirmed by licensed trade valuers and agents Christie+Co.
London, in particular, continues to lead the way in terms of value as the tourist industry enjoys a continuing boom and the first 2012 Olympic developments begin to emerge.
The start of the smoking ban is becoming a landmark date of enormous importance which looks certain to signal a major move towards a pub business where the main trade platform is no longer beer and skittles.
Christie head of bars and restaurants
for London Billy Couper pinpoints another discernible trend, predicting that the decision by pub companies and operators to switch managed houses to leasehold areas will
continue.
Increasingly, entrepreneurs will view many of these under-performing properties as good growth potential, while resident managers of some pubs will also take the plunge to run these houses as self-employed licensees.
Chris Field, finance consultant for Christie Finance mortgage brokers in London, says these pubs offer good opportunities for existing managers.
Punch Taverns has successfully let 21 former Spirit managed pubs through the company in London - just a handful of many managed houses being converted to leasehold operations in the region.
"Often premises which may not have performed to their full potential under management present an opportunity for an experienced individual or team. Many would-be purchasers have held on to the misconception that it is impossible to raise a bank debt on a leasehold pub acquisition," says Field.
"From experience, as long as the required loan term falls within the unexpired term of a lease, a commercial mortgage may be possible." Field adds that banks normally require proof of tangible security in the form of investments or endowment policies, trade experience, cash for set-up costs and robust profit and loss accounts.
Competitive new breed
It is impossible to ignore the new breed of pub business and broader entrepreneurial skills that the ban will encourage, says Christie+Co's Enfield-based pubs negotiator Simon Helm.
"Food is the buzz-word; many pubs are aiming to create a family-friendly atmosphere to attract customers who would not have visited pubs in the past," he says.
Helm believes the new pub image will encourage more letting accommodation business: sites with spare capacity on upper floors could see major developments in this area.
Helm points to a different style of operator moving into the pub industry as a result of the changing trade trends: "Most people I see are young, with a professional approach to the industry and a keen eye on profit, promotions, good food and imaginative décor.
"The London licensed trade is extremely competitive and new business starters are generally of a very high calibre.
"Gone are the days of simply opening the doors, selling pints to the locals and collecting the profits," says Helm.
