Coping with the crunch

The national newspaper headlines may be screaming doom and gloom, but, as Tony Halstead finds out, the licensed property market is still in a healthy...

The national newspaper headlines may be screaming doom and gloom, but, as Tony Halstead finds out, the licensed property market is still in a healthy state

The domestic housing market may have taken a direct hit from the global credit crunch and economic slow down, but pub sales in London and the south-east have held up well despite the economic doom and gloom.

Property agents report reasonably healthy ongoing activity throughout the region, with buyers starting to capitalise on a new realism as owners adjust their prices to meet the new financial order.

The market has, nevertheless, slowed down as buyers and sellers draw breath and contemplate downbeat headlines almost daily.

But while the negatives pour out of the Square Mile, and banks have tightened their lending criteria, talk of a meltdown or a crisis is well wide of the mark.

Quality freehouses and leasehold pubs continue to attract healthy demand, and experienced entrepreneurial buyers armed with a focused vision and good business plan are still getting the loan funding they require.

Other buyers, however, are not finding life as easy. A good number, especially first-time buyers, may not always be able to raise the funds they need to purchase a freehold or decent quality leased pub, simply because they now no longer meet the more stringent lending criteria imposed by the banks and other institutions.

Premiums in the south-east and London may have dropped as turnover in pub businesses decreases, but, with many sites now food-led, the decline is not as marked as in other areas, with beer pubs in particular suffering more.

Divisional director of chartered surveyor Fleurets, Cameron Campbell, believes the region is well equipped to ride out the worst of the economic storm, but admits the sector faces problems along the way.

"In London and the Home Counties the average premium as a percentage of turnover was 32% in 2006, but this fell to just 24% last year," he says. "A drop in turnover in the corporate market means there are less funds available for acquisitions.

"Given the large numbers of available properties on the market, including both private leasehold opportunities and corporate bottom-end freeholds, we are entering a Catch-22 situation in that there are plenty of willing buyers, but many are not able to fund acquisitions."

Campbell explains that with increases in interest rates, banks are being cautious or even unwilling to lend money.

"Even so, there are still some fantastic opportunities for cash buyers — typically corporate operators who primarily self-fund an acquisition," he maintains.

"The south-east is generally more resilient than other parts of the country, while London is somewhat insulated, with its good job security, solid property values and city bonuses on offer. There is generally more stability throughout the region that prevents the market feeling the pinch being experienced in other parts of the country."

New age of realism

Buyers and sellers who take a common-sense approach to pub deals are the most likely to come through the current economic difficulties, says Billy Couper, pubs and bars negotiator for the London office of Christie+Co.

"There is still a good market for sound purchasers and sensible vendors, if they both adopt a sense of realism to a transaction," he reports. "There are still plenty of serious buyers out there who can approach a deal with funding in place. Sellers coming to the market with a realistic value of their property will normally find there is a ready bank of prospective purchasers."

Christie+Co opened a new dedicated office in Finsbury last year, which takes in some prime areas of the capital, including the West End, Central London and Canary Wharf.

Even here, however, the credit crunch means that a new realism is entering the market with sellers now wary of over-valuing their business as buyers are no longer prepared to pay over the odds.

"Much has been said and written in recent months about the attitude of the banks in the lending market, but, as far as the pub sector is concerned, they are happy to lend as long as a purchaser can display a good track record," Couper stresses.

Another Christie executive, Matthew Smith, associate director based in the company's Maidstone office, concedes that the market had become more cautious in the light of the credit crunch and the consumer spending slow down. But quality businesses will always have a market and — alongside solid trading information and transparent accounts — achieve their best price, he says.

Smith points to the sale of Simple Simon's in Canterbury, which was sold to Young's within weeks of being put on the market at a price in excess of the £1.5m advertised sale figure. But he concedes that the upwards trend in leasehold values had tapered thanks to pressure on pub profits, more managed houses being put on the open market for lease, and the reluctance of some lenders to support "unsecured" loans.

Stuart Jacobs, of Christie+Co's Enfield office, says buyers often now hold the upper hand, as sellers are obliged to lower their sights and offer pubs at prices that reflect the "new realism".

"One trend that continues to grow is the appetite of buyers for pubs with letting accommodation," says Jacobs. "This is often a bulletproof part of a business and can offer a licensee valuable income, not just from tourist visitors, but from the growing contract-worker demand for budget accommodation.

"Areas where major building and development programmes are taking place, with the Olympic Games project at Stratford, East London, an obvious example, are key areas where pubs can enjoy substantial business in the letting-room arena."

Crisis, what crisis?

One southern-based property agent remains unfazed by the economic pressures facing the market. AW Gore & Co, which runs offices in Northam, Faversham and Brighton, reports brisk business over May and June.

The company is set to deliver 14 completions in June alone and makes light of the credit crunch and other difficulties.

"It's been a busy time for us and all talk of gloom and doom is over-played as far as we are concerned," said sales negotiator Anthony Reiss. "Demand in the market is still fairly strong."

Paul Davey, from agent Davey & Co, agrees reports of a crisis have been over-exaggerated. The company has just opened a new office in London's Berkeley Square and says business has started on an encouraging note.

"People read concerted media reports about the credit crunch and loan markets, but deals are still being done," he insists. "Some people, however, are holding their breath and keeping their options open. So, while we could have a slowish summer, I expect things to liven up into the autumn."

"Basically," he adds, "good pubs are still being marketed and the banks are willing to lend. But at the moment they are looking at the proposer almost as much as the proposal when it comes to a loan."

Agents in London and the south-east

Caxtons Chartered Surveyors

East Sussex 01435 813700

www.caxtons.com

Christie & Co

London office 0207 227 0700

www.christie.com

Colliers Robert Barry

London office 0207 344 6644

www.colliersrobertbarry.co.uk

GW Cooper

Surrey 0208 390 7833