Invest in the free market
Buying a freehouse remains a holy grail for most licensees who dream of being their own boss. Tony Halstead reports
Ask four people to give you their definition of a freehouse and you are likely to get four different answers. Modern-day pub operators are adept at passing off their properties as free-trade businesses when, in truth, they are nothing of the sort.
Traditional trade purists believe there has only ever been one form of genuine freehouse and that is a pub where the bricks and mortar are wholly owned by the licensee, who is free to trade with any brewer and supplier
he pleases.
Forget your free-of-tie lease, your lease-operated pubco-owned house offering a so-called "free-trade" choice of beer, and the assorted hybrid operations hiding under the free-trade banner. It's only the owner-operated independent pubs that can lay claim to real free-trade status and, despite stories of their demise, there are still plenty about.
One in four of Britain's pubs are reckoned to be freehouses - a ratio that has changed little over the past 10 years or so. Many freehouses put up for sale may still fall into the clutches of the pubcos, but disposals continue at the other end of the market and a continuous churn ensures the 25% figure remains generally constant.
Deals conducted 'off market'
If there is a perceived shortage of good-quality freehouse pubs it's probably down to the fact that sales of many premises are never made public. A high proportion of deals are still conducted "off market", are never advertised and never attract any sort of public bidding round. And the escalating rate of pub closures - as many as 14 every month, if you believe latest estimates - means there are generally fewer pubs around anyway.
The market, however, remains in a buoyant state with genuine freehouses selling quickly and often at premium prices. Martin Nicholson, partner at the South Yorkshire-based licensed property agents Brownill Vickers & Platts, says the freehouse market is booming, particularly in the well-heeled rural areas of the UK.
He says: "If a pub is attractively positioned and trading well you know there will be no shortage of serious buyers lining up."
Different income streams
Nicholson continues: "The North has no shortage of picturesque landscape regions where the traditional freehouse has always been a feature of the licensed trade. The ability of a business to combine a variety of different income streams makes it stand out as an extremely desirable property for buyers.
"Businesses combining decent wet-trade volumes with good food and letting accommodation are the ones that are most in demand."
"Much has been written about the smoking ban and its likely effect on the industry, but if beer trade is going to suffer as a result, other revenues from food and letting accommodation will become critical for both buyers and sellers," he adds.
The relentless rise in the value of good freehouse pub stock means that sales of more than £1m plus are no longer a rarity.
"Prices have risen sharply over the past decade, and whenever we have hit what we think is a ceiling, we get another deal breaking the barrier. Deals of more than £1m are not uncommon now and good houses in the best regions, such as North Yorkshire and Cumbria, will always remain the pick of the crop," he says.
Moreover, Nicholson says commercial lenders have become increasingly active in the pub sector, although brewery loans dished out by companies prepared to lend on a higher-risk basis than a bank may become more popular now that interest rates are on the high side.
"It's not unfair to suggest that breweries are prepared to take a higher risk than banks, which may be a little nervous of dealing in loans of more than 80%," says Nicholson.
GA-Select managing director Graham Allman says about 55% of his instructions currently involve freehold properties. And changes in the licensed-trade landscape
mean pubco buyers are now considering
pubs that they would not have put on their acquisitions list a few years ago.
"Food and accommodation business is much more of a driver than before and the advent of the smoking ban will help influence the changes yet further," Allman says.
"Freeholds in towns and cities are not that easy to find, so it is the more rural pubs that tend to rule the roost across the freehouse market. Financial market loans are readily available, but buyers have to display the right business skills."
He adds: "There is evidence that a new type of buyer is emerging and that they are looking at rural freehold pubs where they can identify the right business growth potential.
"Beer revenue is not as critical for them, and with the growth in eating out and letting accommodation, which offers far greater gross profit, it's easy to see which parts of the trade provide the best spin off."
Traditional property hotspots
One of the traditional hot spots of the freehouse market, the West Country, continues to be a popular hunting ground for pub buyers.
Licensed trade agents Bettesworths, based in Torquay, has just reported its busiest six-month period in the 64-year history of the company. Major freehold sales included the Old Quay House at Hayle, Cornwall, sold off a £1.75m asking price and the famous Cary Arms at Babbacombe Bay, Torquay, sold for £1.4m.
Managing director Barney Bettesworth says that while there may be a shortage of higherquality freehouses, the company is currently marketing 30 premises.
"Pub sales across the West Country traditionally quieten during the height of the holiday season in July and August, and increased interest rates mean viewings have significantly reduced. However, the fact remains that there are still buyers out there and underlying demand is strong," he says.
"Our message is that if you wish to sell, then you must take a realistic view on price, as
buyers are looking carefully at returns before even making an offer."
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