North East Property Analysis

When The Publican​ visited Newcastle back in January as part of our Publican Local series, to report on how licensees in the area were finding trading conditions there, we got a mixed bag of responses.

From city-centre bars to suburban locals, some found that business was standing up well to the challenges of the smoking ban and competition from supermarkets. Others told us that the loss of local communities due to things such as redevelopment and the demolition of neighbouring housing estates had hit trade hard. But all commented that they had seen many of their rivals disappear over the years.

Saturation point​

Ian Taylor, who runs three Head of Steam venues in the city centre, said: "There are going to be a lot of pubs getting into difficulty because we have reached saturation point. It used to be that opening a pub in Newcastle was a goldmine but since about 2001 that hasn't been the case."

A glance at the property particulars for pubs in the area from a number of agents seems to back this up. The North East market is dominated by bottom-end pubs.

Eight of the 30 Scottish & Newcastle Pub Enterprises disposals recently announced are in the region, a large number of Admiral disposals are in the North East and other large companies such as Punch, Enterprise, Greene King and Marston's are making disposals in the area too.

But with disposals, come opportunities. The North East is one of the cheapest regions in the UK to buy a pub. Figures released by property agents Fleurets in December in its Survey of Prices, which details sales achieved by the agency last year, showed that leaseholds in the North East and Yorkshire area combined averaged at £55,894 in 2008 compared to the national average of £82,222.

The average price of bottom-end freeholds was £168,063 compared to a national figure of £290,440.

Prices have undoubtedly fallen further since the end of last year, and finding a pub for sale in the region for between £100,000 and £175,000 for the freehold and contents is not uncommon. There are a vast number of nil premium leasehold properties on the market in the area too.

Although a slump in prices, as buyers find it hard to fund deals, and the churn of properties at the bottom end of pub estates as pub companies attempt to sell off unprofitable sites is a national trend - it is undoubtedly more pronounced in the North East region. Why?

Historical reasons?​

Simon Hall, a director at Fleurets and head of agency for the North, says: "You need to look at it historically. It probably comes down to the industrial revolution where the densities of the working classes were around car factories and there was a pub built on every corner.

"Those pubs are the ones that have been kept open artificially over the last 10 years, through financial engineering, and are now no longer able to be."

Martin Stansmore, a negotiator for Christie + Co, is based in Leeds and covers Yorkshire and some areas of the North East. He says the situation is similar in other Northern regions such as the North West, and the Midlands.

"Any area that historically relied very much on heavy industry has been affected to a degree. In the North East, in some of the pit villages, maybe one or two of their pubs are closing as the industry has moved. But I don't think that's a regional thing for the North East alone. It's definitely a Northern thing," he says.

The legacy of the decline in industry has been lower employment figures - the region has the highest level of unemployment in the UK and the lowest GDP in England.

So is there activity in the market and who is buying? "The North East and Yorkshire are very busy," says Hall. "The lower value freehold where the pub companies have to sell because they can't find a tenant or are having to raise cash, are being forced onto the market at prices that can be achieved so there is a lot of activity.

"The vast majority are going to local people because they are local operations really. They want to operate a pub, that local pub, the one they used to go to as a kid. About a third are going for alternative use, but two thirds stay or re-open as pubs. A lot of the properties we are dealing with are closed."

Taking advantage​

Hall also reports that several regional multiples are also taking advantage of the low prices in the North East and North West to build up their estates including the Original Your Pub Company, the Cedar Pub Company and Amber Taverns.

But as well as areas of decline, there are also exceptionally affluent and desirable locations in the North East too.

Some coastal and market towns, such as Alnwick in Northumberland, benefit from a wealthy local population and seasonal business from tourists. For example a nearby tiny seaside village, Alnmouth, still has four pubs.

So what of the lifestyle buyers or those after the high-end freehold properties? There are plenty of them, but due to the economic climate, both vendors and buyers are not particularly active at present. "That part of the market is very allied to the residential market," says Stansmore.

"Vendors are keeping hold because they don't want to sell their properties and get £300,000 less than they paid.

"And the same people who would usually sell their nice house for £500,000 and go and buy a country pub have found that their house is only worth £300,000 now and they can't sell it."

However, many agents are predicting this may now start to pick up nationally as signs of recovery, including reports of an increase in the number of mortgages being issued and low interest rates, occur.

Agent Sidney Phillips opened a new office in Hexham, Northumberland, at the end of last year, to cover the North East region. Office manager David Gibson says that confidence hasn't fully returned to the market just yet.

"We have found that a lot of the bigger regional operators are still holding back," he says.

"We have clients with up to 60 pubs in the area who say they are concerned with prices at the moment and will re-enter the market again in six months. They have said they know that sounds silly as there are some bargains out there at the moment.

"There are signs that people want to buy, but it's just about confidence."