Credit goes west

The West Country pub property market is starting to feel the bite of the UK's economic slowdown. Tony Halstead reports

West Country pub sales have witnessed a cool wind of change over the past 12 months as the UK's economic downturn, the smoking ban and the much-talked-about credit crunch combine to hit the property market.

A year ago the region was experiencing a veritable boom, with buyers queuing up to acquire new pub businesses and lenders almost falling over themselves to supply the necessary funds.

But the changing economy, coupled with last year's disastrous summer weather, which monsooned the local tourist industry, has brought a sudden end to the good times.

Although traditional West Country hot spots continue to attract plenty of interest, a new realism has entered the market.

Prices are no longer spiralling and many would-be buyers are being constrained by far steeper borrowing requirements imposed by commercial lenders.

The mini boom experienced by the south-west over the past five years is at an end, and all those involved in buying and selling properties are looking anxiously for a silver lining at the edge of the clouds.

However, south-west licensed property expert Bettesworths, based in Torquay, believes the current difficulties being experienced may be no more than a blip for the region.

"Many operators are praying for a fine summer in order to restore faith in the region as the number-one destination for English holidays," says director Matthew Bettesworth.

"And the strengthening of the Euro against the pound may also help the region's economy as more holidaymakers decide to stay in the UK rather than travel overseas."

He adds: "There is still a market out there, albeit one that's a little tougher, so a more realistic approach is required. Dreamy asking prices will be a waste of time and once a realistic price has been set some flexibility may still be required. While 2008 will not hit the heady heights of 2007, there is still a market out there for anyone genuinely wanting to sell."

He continues: "This is a very different situation to last year's buoyant market where finance was widely available to buyers and lenders appeared to be falling over themselves to offer support.

"Inevitably, this has had a knock-on effect with purchasers still keen to buy, but being constrained by their funding ability and wariness about where the market is going.

"Poor summer weather last year and the impact of the smoking ban mean some operators have not seen the growth in revenue that was possibly predicted."

The company is still fielding plenty of enquiries and recording more than 4,000 hits on its website each week, which demonstrates that purchasers are still actively scouring the market for properties.

Gary Roberts, of local agents Peninsula Commercial, says the market in the West Country is holding up, despite problems elsewhere in the UK.

"While freehold pub prices do not rise or fall in line with the residential market, they are influenced by the general activity in the residential market place.

"We have quickly seen the market change in the past 18 months from a sellers' market to a buyers' market.

"While the so-called credit crunch has not had an impact on the level of new purchasers registering with us, buyers are finding it harder to secure a commercial mortgage on similar terms to pre-Northern Rock.

"Generally, bank criteria has become more stringent, with many banks perhaps seeking larger deposits by an additional 5% to 10%, making a freehold pub purchase more expensive," he says.

"Premium prices have been paid for businesses throughout the West Country for many years now, and we all knew the time would come where the market would re-adjust and more realistic prices would have to be asked for as a result.

"While the property market re-adjusts and many current sellers refresh their expectations on price, we need current interest rates to come down by at least 0.5%, as many predict. It is at that point that many businesses become more viable

to many purchasers."

Peak prices obtained for pub properties over the past two years or so have dipped somewhat, reports agent Paul Davey, whose company set up a new office in Bristol at the turn of the year.

He reports that "lifestyle buyers" are continuing to show plenty of interest in prime properties and the traditional West Country "roses around the door" aspirations of pub buyers still make a difference.

Business-minded purchasers, keen for a change of career, are realising the equity offered by selling their home to help them acquire the owner-occupier business premises the region still offers.

What is certain is that many sellers are faced with getting less for their pub than they might have received 12 months ago. Just as prices in the domestic housing market have dropped, by as much as 2.5% last month alone, pub values have also taken a hit.

Conversely, any buyer with cash at the ready, and not dependant on a mortgage or commercial loan, may well find more pub properties available at value-for-money rates.

"There have been premium prices realised by many pub sales in recent years, but the economic slowdown and tougher loan climate now mean values have steadied," says managing director Paul Davey.

"But we received plenty of new instructions in January and February from buyers hopeful that this summer will offer better returns in terms of weather."

Jon Clyne, of Christie+Co's Exeter office, stresses that tourism is not

the only driver of West Country pubs. Clyne says buyers taking on new businesses can capitalise on a thriving home market, as long as they offer customers a distinct point of difference.

"Many pubs, particularly those in Devon and Cornwall, benefit from a strong tourist trade and, not surprisingly, generate considerable demand when put on the market.

"But in other areas pubs have had to adapt to ensure survival and, while many buyers still dream of owning their own pub in a beautiful location, it is essential for them to think 'outside the box' and to offer something different," he says.

Nevertheless, many country pubs that have traded strongly over the years are now feeling the pinch of a generally difficult rural economy. Clyne says that more rural inns are being forced to diversify their trade to get the income needed to remain viable businesses.

Pubs such as the Pint & Post in St Giles-on-the-Heath, Devon, now successfully combine a pub, tearoom and post office.

Another pub, the Racehorse at Tiverton, Devon, currently being marketed by Christie+Co, now offers a local meals-on-wheels service and the current operators insist they will not sell to any buyer who is unwilling to continue this vital local service in the future.

Divisional director of Fleurets' West Country office, Chris Irving, concedes that the market is quieter now than at this time last year.

"Lifestyle shifter enquiries have reduced, probably due to the credit crunch and slowdown in residential property sales, but I think there is still room for optimism," he says. "People have less money to spend on foreign travel and I think we could well see tourism increase, with licensed premises in the region enjoying the benefits."

Sales to buyers re-locating to the region still feature in the portfolios of agents across the south-west. One recent example was the sale by Fleurets of the Bradworthy Inn, Bradworthy, Devon, which was sold off an asking price of £550,000.

Fewer pubs are being snapped up by developers keen to convert the properties for residential use. Hotels and pubs in popular coastal towns have traditionally been acquired for non-licensed purposes, but, with a slowdown in development and uncertainties in the residential market, demand from speculators has slowed down too.

There are many different market forces at play that are set to influence the region's tourism-based pub market this year.

Property agents throughout the region will be watching how the market develops this summer, which could prove a de