That great slumbering giant of the British pub industry, the freehouse, is stirring. Freehold free-of-tie pubs are being bought and sold once more at a healthy rate.
But the freehouse is reawakening to a different world, where the credit crunch has left its legacy.
One factor in play is the changing structure of the UK pub industry. As tenanted and leased pubcos adjust their model and strip down their estates, formerly tied pubs are coming onto the market.
Licensed property agent Christie+Co predicts that by next year the number of freehouses will have expanded to 20,000 from 17,700 in 2008.
This figure reflects an increasing proportion of pubs continuing to trade as pubs.
"In 2010 some 60% of the pubs sold by Christie+Co from the tenanted pubcos' churn were bought to remain as pubs," says the company's head of pubs Neil Morgan.
"With the rising quality of the pubs coming to the marketplace now, not to mention the volume, I'd fully expect that percentage to increase. So more pubs will be retained in the market; certainly a greater number of a higher quality will remain.
"Entrepreneurs who sold interests to national pubcos years ago are now returning to a more vibrant, higher quality marketplace."
Yet, as Morgan says, "there is an elephant in the room — funding".
While banks express a willingness to lend to businesses, it's very much on their own terms. In reality it's extremely difficult for an individual operator to buy a freehold pub.
"Banks will tell you that you can borrow, but at best they're lending only 50% of the purchase price, and that's if you can demonstrate a track record," says Simon Hall, head of pubs at Fleurets.
"The pubs that the pubcos are selling off don't have accounts, so it's difficult to raise funding to buy them. Down-payment is the problem. People don't have the equity from the sale of their houses to step into a freehold pub as they used to do.
"They have to have security behind them and £100,000 to put down."
Nevertheless, the appeal of a freehold pub has never been higher.
"At a freehouse the price of beer is so much lower and mortgage repayments, based on current interest rates, are often no more than the rent," says Hall. "This enables an operation to compete more effectively with discount-based managed operators and to some extent the supermarkets. A more profitable operation also enables and justifies more investment into the site, again making it more viable.
"Values have not been this low for a decade; loan repayments are also low and barrelage discounts have never been as large. It's a cracking time to get into the market."
Paul Tallentyre, director of pubs at Davis Coffer Lyons, notes that "freehouse prices are picking up again", driven not by traditional owner-operators but by thriving multiples.
"A lot of people are looking to buy," he says. "Joe Bloggs still needs money in the bank, but pubcos such as Capital Pub Company, Faucet Inn and Real Pubs are taking a calculated risk.
"Pubs doing a good trade of £10,000 a week and upwards are selling strongly as pubs, but quite often with a residential development upstairs. There's a lot of that going on. It's all about maximising the property.
"Greene King, for example, is on the hunt for pubs with potential for letting rooms, and there are companies that are buying pubs and putting in a different kind of offer."
Interesting purchases
One unusual newcomer for instance, is hostel operator Journeys. Over the past couple of years it has bought a few freehold pubs and installed hostel accommodation while franchising out the pub downstairs.
Tallentyre is also seeing rising prices, at least in central London.
"We're currently selling a pub at £5m and there's good competition for it at that price. There are buyers out there who, if they see something they want, they buy it. Freehouses are a very desirable market for companies expanding their portfolios. It's pretty hard to lose your money."
Graham Allman, managing director of GA-Select, has seen a revival in the traditional freehouse market from the second quarter of 2011 with the interest coming from "small up-and-coming pubcos with up to 10 outlets, and private buyers looking for 'something special' that has to be pretty and in an up-market locality".
"Freeholds that have recently come to market tend to be those being offered for the first time in many years. Vendors being forced to sell due to financial reasons is becoming less of an issue, but they're hanging on for the offer of a reasonable price.
"That means the chance of picking up a cheap deal has passed, although prices aren't exactly escalating. Though we don't expect values to recover completely for some time — possibly five to eight years — neither do we expect vendors to give away a good sustainable family business.
"Purchasers should step up to the plate before businesses that have been in the same hands and families for decades are all sold off. It's literally a once-in-a-lifetime opportunity.
"When the banks come back into the market the next round of escalating interest and offers will kick in."
There are certainly regional variations, too. While London is probably the strongest market, the West Country, always desirable for a freehouse, continues to attract strong interest.
Rather than the individual making a lifestyle choice, though, it's investors from outside the pub industry who are making their move.
Jeremy Beeching, at Scott Burridge Commercial, has seen a new kind of operator coming into the market in Cornwall. Among them have been hotelier Barclay House, which has bought the Plough at Duloe; a property company that has bought the Masons Arms in Bodmin, converting the upstairs into residential flats while keeping the pub running downstairs, and a group of farmers who took over the Falmouth Packet Inn last year.
"They see it mainly as an outlet for their beef, and they're doing really well," says Beeching. "I'm not all doom and gloom about the market at all. People are coming into the trade and finding ways to make a pub work."
Small-time buyers
And as well as small pubcos, increasing interest in craft beer means small brewers have come into the market.
"Operators are keen to pursue certain styles of business that can only really effectively operate in a freehouse environment," says Chris Bickle of the David Coffer Lyons pubs team.
"Many of them are exploring the specialist beer, ale and cider market, which doesn't work as well in a tied pubco model."
He's recently sold a vacant pub, the Bull near north London's Highgate Village, to a start-up brewer, the London Brewing Company, which plans to build a keg brewery on the site as well as reopen the pub.
"There is a rise in small brewers who are in effect creating freehouses, but supplying their own beer," says Sam Frankland, director of Colliers International's Licensed & Leisure arm. "Examples in my region include Ossett Brewery and WharfeBank.
"And while it doesn't brew, Market Town Taverns has revived some poor pubs throughout North Yorkshire by developing great community locals serving a vast range of ales."
Funding issue
For Paul Thompson, who at Acorn Finance looks at the freehold pubs market from a funding point of view, it's a mixed picture.
"The freehold market has been opened up to smaller traders as pubcos have no longer been able to blow them out of the water with the ludicrous prices that drove vendor expectations to unsustainable levels," he says.
"The drip-feed of pubco disposal units means small cash-rich operators have a great opportunity to grab a bargain.
"But the problem is still finding funding for units without accounts — and pubco price expectations can often be unrealistic.
"Trading freeholds are not coming to the market either, because the prices suggested by agents are not enough to tempt successful licensees to sell.
"So the only units we see much of on the market are disposals or distressed sales."
Case study: Wear Inns