Scotland's town and country divide

Scottish pub property sales haven't just slowed down - they've fallen off a cliff.

That's the frank assessment from a number of agents who have seen first-hand the effects of a malaise which began with the smoking ban in 2006 and continued with expensive licensing changes, the threat posed by supermarket drink sales and, of course, the recession.

But while one estimate reckons the number of sale transactions is down by around 80 per cent over barely more than a year, it seems the picture is far from universally grim.

And the smoking ban, trumpeted in recent press accounts as the prime cause of a major Scottish pub downturn, is seen by agents and surveyors merely as the factor which propelled bars already "on a shoogly peg" into closure.

It seems that if your unit survived the onslaught of legislation and recession and is still ticking over reasonably well, it could be a hot prospect for a buyer prepared to pay something like old-time values.

There's general agreement that the leasing sector is rapidly adapting into a very different animal from the days when Punch Taverns and Enterprise Inns were scouring the land for bars with good barrelage that could be turned into tenancies.

Now these firms are continually churning the bottom ends of their estates, and looking for ways of making cash in the remaining units beyond simply selling impressive quantities of beer.

Collapsing model
Roy Hudghton of chartered surveyors DM Hall says it was the imminent collapse of the big pubcos' leasing model - not the smoking ban or other factors like licensing changes - which was mainly responsible for the large numbers of bars that closed in a short space of time.

"The greed of the big companies, rather than the smoking ban or any other negative factor - the upward-only rent increases and the rest of it - meant tenants were simply handing in their keys," he said.

"But now we're seeing some of these unworkable tenancies moving back into local management - they're being acquired by individuals, or local pub companies, who know how to make a go of them."

At the same time some prime units are currently on the market in Edinburgh because significant local player Festival Inns has been forced to rationalise to ease group cashflow problems.

Its pubs - including the phenomenally busy Three Sisters venue in the capital's Cowgate - are seen individually as licensed goldmines for any potential buyer.

Meanwhile, all agents agree there's been carnage in rural areas, where hard-pressed licensees couldn't or wouldn't invest, leaving them increasingly unable to attract trade.

Simultaneously the steady flow of English entrepreneurs who once took advantage of the South/North property price differential to pursue a "Monarch of the Glen" lifestyle has dwindled to a trickle. The English property bubble burst, and the challenge of making a success out of a niche business suddenly seemed much harder.

Yet agents insist the more promising sites can still do a turn for a well-organised entrepreneur, for example with a plan to turn a folksy traditional boozer into a destination dining spot; in rural Scotland these are often hotels, with a few nominal rooms, but trading essentially as pubs.

Features like quality homemade food and cask ale underpin the success of some of the best outlets.

Highland areas - for example in Ross-shire - which once seemed out of the way - are now within reach of relatively affluent people moving into Inverness who are looking for somewhere nice to go late week and at the weekends.

By contrast, in urban areas away from city centres there's been the stealthy development of a completely new trend - selling off pubs to retailers.

Alan Creevy, who heads national pub sales for Jones Lasalle, said: "We've just dealt with the sale of a former bar-restaurant venue, Agenda, on Glasgow's south side. It's been acquired by Tesco Metro.

"This simply didn't happen before. You certainly got some people taking advantage of the property prices before the slump to sell off pubs for housing, but this is quite different - we're now seeing retailers moving into the sort of sites that would usually have been occupied by bars."

He says a Darwinian process has narrowed the traditional wet-led sector down to a tight but apparently robust residue of solidly-performing outlets that could hold their own with little change for years to come - but, he adds, these are exactly the sort of sales you seldom see on the open market.

"People look at the general situation and simply don't sell," he said. "There are plenty of investors with good plans who want to buy pubs, but they are finding it hard to get what they want, because they do not want 'the rubbish' - and the good outlets aren't usually for sale."

He estimates a city wet-led pub of the traditional one-room Scottish variety which might once have changed hands for somewhere between £500,000 and £750,000 has lost the equivalent of a year's trading in value over the last couple of years.

But at the same time he says it's too easy, indeed lazy, simply to see the whole sector as a disaster area, because some bars - particularly in areas where there's solid regular custom and no obvious rivals - are still trading merrily away, with performance and therefore value little affected by the downturn.

Different patterns

In the city centres some different patterns are starting to emerge. JD Wetherspoon once reckoned it had sufficient outlets in Glasgow when it opened its seventh, but is now getting set to open another - directly across the road from its first, in George Square.

So while Mitchells & Butlers has sold off 15 Scottish pubs to Stonegate in line with its move out of the price-sensitive market, the kingpin of the low price league is reinforcing its hold on a key circuit.

Brian Sheldon, director at Christie & Co, who handled the sale, said: "The new Wetherspoon is on the site of the former Europa bar-restaurant (which had traded as a better-than-average place to watch screen

football) right beside Queen Street station, so it was seen as an ideal location."

The firm won't say what it sold for, but it's thought Wetherspoons was happy to pay a premium for a landmark site.

"All sorts of things have conspired against some of the more ordinary city sites," says Sheldon, "from Sky TV charges to the minimum wage.

"But it's all about the site, and about sometimes complex local trading patterns. The boat is still circling, with people seeking out places they think they can develop to suit a specific market - it will usually be by making a main feature of food."

Equally while many rural pubs have shut up shop some of the best-developed sites remain in hot demand. He expects strong interest, for example, in the Fox and Hounds in Houston, Renfrewshire - a country inn with its own microbrewery.

It is close to major conurbations and has a reputation as a solid-performing pub with a well-developed food business, and he's expecting strong interest in the sale.

Overall the Scottish pub sector has been on a white knuckle ride to near oblivion, if you believe Scottish press accounts, however the situation is inevitably more complex.

But amid all the doom and gloom about pub closures it's clear the reality, once you factor in closed pubco leases and failed rural businesses, is more about a grand repositioning of the market.

Some closed pubs have become opportunities for people with an eye to a potentially profitable local stream of business, and the worst of what has obviously been a vicious shake-out of pubs may be past.

Meanwhile, local players and well-prepared entrepreneurs - who once appeared set to be forced to the margins by the national pubcos - are now coming much more strongly to the fore.