Acquiring London pubs: Building a presence in the capital

In the same week that Young’s bought four pubs for £10.4m, TIAA Henderson Real Estate splashed out £54m for eight properties.

This follows other eyewatering prices being paid such as the £7m purchase by Fuller’s of the Harp in Covent Garden and McMullen’s buying the Old Bank of England in the City for a chunky £8.6m.

With such stratospheric prices being achieved for London’s pub stock, what chance do small independents have of building a presence in the white-hot capital?

Anselm Chatwin, co-owner of Grace Land — a partnership with Barworks operating three pubs in the north and east part of London, suggests the task is getting harder because both new players and large established companies are now after sites, which is pushing up prices.

“New people will pay highly because they want to get started and the big operators are paying up because their shareholders demand more growth. We’re in the middle and so we miss out. The demand for sites means there are very few bad units left in key locations. You therefore have to ‘chance it’ when taking on a pub now,” he suggests.

This was the case with the Earl of Essex, which is on a quiet street in Angel with little passing trade, but worked out well.

“We didn’t appreciate that the location has a lot of office workers nearby and neither did the other interested parties so we got in quick before they realised,” says Chatwin, adding that property agents now expect offers to be made at such a pace that there is often not even enough time to view the unit.

“It’s harder than buying a house in London. By the time you see it, the agent has already had five offers on it. And we are now seeing open days where everybody views it on the same day,” he says, somewhat exasperated.

The pecking order

Working closely with property agents is essential, even though Chatwin acknowledges that new sites ultimately get shown in order of the agent’s preferences — with the big boys at the top of the pecking order.

Simon Bunn, managing director of Brewhouse and Kitchen, recognises this all too well, especially as his business model is to buy freeholds, which he admits means “it’s difficult to compete with the big boys because the return on investment doesn’t stack up for us”, whereas they seem to be working to very different payback time-frames.

The company’s latest pub (Brewhouse and Kitchen Islington), which is effectively a freehold purchase (a 150-year lease on a peppercorn rent), therefore required Bunn to pay “significantly” more than the asking price even though he says it is “tucked away”.

It also helped that he took it as part of a package (via Fleurets acting on behalf of Mitchells & Butlers) involving two further pubs: the Junction in Highbury & Islington; and a unit in Bristol.

The Junction breaks the mould for Bunn because it is on a lease but he says he quickly recognised its potential.

Knowledge is key

Spotting potential in order to unlock value is the objective of Martin Harley, owner of London Village Inns — that operates six pubs around the capital including the recently opened Westbury.

Harley is effectively taking on pubs in areas at the vanguard of gentrification: “You need to add value and not take on a place that is trading well. The Westbury had been run down but I was getting a good vibe about it. It’s a bit of a punt really though.”

He adds: “If you’d have asked me two years ago if I wanted a pub in Wood Green, I’d have said you must be mad. But often it’s ignorance. You need to dig deep to find out more about a site. I’ve no interest in going to Mayfair and paying extortionate amounts, instead I go to where I’m needed and wanted. Where there are young professionals and a discerning clientele who [desperately] want a quality local.”

Harley has cleverly built up a mixed portfolio of properties — two freeholds and four leaseholds from various pub companies — each with an offer tailored to the deals he has struck.

So while the Jolly Butchers in Stoke Newington is a freehouse with a serious craft beer offer, the Westbury is leased from Punch and he has had to work within the restrictions of what beer he can stock.

Creativity to develop

This flexible approach has given him a much greater chance of securing sites.

But for Tony Lennon, licensee of the Hop & Berry, who has had a disappointing experience under large pub company constraints, there is a strong preference to operate without any limitations on his beer offer, which makes it tougher for him to expand.

However, his tenacity led to him to the Hop & Berry where he struck a deal with its private landlord to run the freehouse. He is also thinking creatively about how he adds more pubs to his portfolio, which includes looking at A3 units with restaurant licences and convert-ing them to A4 with a pub/bar licence, which he says is a strategy successfully employed by BrewDog.

Because of the desire of the local council for Peckham in south-east London to become “trendy”, Lennon says it is assigning A4 licences “left, right and centre” so this represents a potentially fertile part of the capital to open new pubs. And he is on the case.

“Ten years ago pubs were closing in London but not any more because people want sites. This means you have to look at creative ways to develop things,” he says, as he, along with many other similar independents, continue to scour the capital for the increasingly elusive next pub.