Outlook brighter, predicts Christie's

Christie+Co has issued a positive forecast for the property market in 2008 - despite widespread uncertainty in the financial markets and difficult trading conditions.

Speaking at the firm's annual business outlook event, Neil Morgan, head of pubs, said the licensed property market was holding up well, with average pub values rising by 6.5% last year.

The figure is a less dramatic increase than in 2006, when average prices were 8.5% higher than in 2005, but Christie+Co maintains that values are still moving in the right direction. Figures are based on the company's average price index.

Morgan said leasehold premiums would return to normal in 2008 after the market was diluted in 2007 with 600-plus ex-Spirit sites coming onto the market.

He said the dwindling supply of privately owned freehouses and free-of-tie sites would also boost prices.

"Pubcos are buying about 5% of the 17,300 privately-owned freehold and free-of-tie sites a year. Increasingly the only option will be to take a leased pub," he added.

The company reported a slight dip in leasehold assignments in 2007. But it expects the volume of assignments to pick up over 2008.

Billy Couper, an associate director at Christie+Co, said: "Buyers will be more discerning, ensuring the business is viable. Sites without any smoking areas will be hard to sell and that shortcoming will be reflected in the price the business is marketed at."

Neil Morgan said the company's advice to clients to seek premiums for new

lettings was justified. It successfully completed on the letting of 637 ex-Spirit pubs, on behalf of Punch Taverns, in just 15 months.

The company sought a range of premiums that varied depending on the quality of individual sites.

Morgan said: "The Punch letting campaign was extremely successful. A subsequent lease assignment [on an ex-Spirit site] provided encouraging news for many licensees to whom new leases have been granted."

The Grange at Wallingford was subsequently assigned for a sum in the region of £400,000, indicating that new lessees can get a good return.

Neil Morgan looks at highs and lows for property trade in 2008

Morgan also talked about a positive change in pubcos' attitudes towards tenants. He said: "In these tough trading conditions, pubcos will re-evaluate their relationships with lower-end tenants.

"Tenants are the life-blood of these companies - and they know that."

But Morgan said that it was inevitable that thousands of "unviable" sites would close their doors for good due to the numerous pressures on the industry, particularly the smoking ban and downturn in consumer spending.

He said: "It is certainly true that large numbers of pubs have closed and will continue to close - but many of these closures are simply due to changing demographics, social trends and the strong appetite for pub sites among developers.

"The smoking ban is certainly a factor but in a lot of cases it has just sped up the inevitable."

Morgan concluded that the current conditions in the trade would make for a "leaner" and "fitter" industry with an ever-increasing emphasis on innovation and quality.