Strong investment seen in capital freeholds

By Nick Lyell

- Last updated on GMT

Strong investment seen in capital freeholds

Related tags: Investment, London

Nick Lyell explains the slight reduction in average London pub yields in the freehold market and why there is still such huge demand from a multitude of investors.

The freehold investment market for pubs in London is very strong at the moment. Currently, average London pub yields are reaching 4% to 4.25%, which has reduced from 5.5% in the third quarter of 2014. This has been driven by the increased demand from a variety of investors and also the lack of quality stock on the market.

We have seen a new wave of investment from the banks and institutional investors in the pub industry.

Previously they may have shied away from these assets, however, there is now greater understanding of the strong fundamental investment opportunities that pubs can provide and investors are increasingly looking for opportunities to invest as supply shrinks in the mainstream investment markets.

However, it is not only the banks and institutions looking to invest. We are also seeing interest from foreign investors, high net-worth individuals and trophy asset hunters, especially with the base rate looking set to continue at an all time low.

A freehold pub in London can offer investors good value for money, frequently long lease terms, asset management opportunities and the ability to create a good relationship with a tenant.

There have been a number of big deals across the capital this year. Recently, Savills advised Greene King on the sale of the Sydney Arms, in Chelsea, to a private investor for £2.55m, representing a net initial yield of 2.78%. We were also instructed by Harwood Real Estate on the sale of the Bedford, in Balham, which was acquired by Henderson UK Property OEIC and achieved a net initial yield of 4.5%.

Other key deals in London this year include Project Bourbon, which was purchased by La Salle Investment Management and comprised seven pubs let to Enterprise Inns located in central and south-west London.

There have also been examples of pub operators making strategic purchases for pubs they wish to occupy in the future, taking a long-term view of the asset.

For example, McMullen purchased the freehold of the Old Bank of England on Fleet Street — currently occupied by Fuller’s, and the Lord Moon on The Mall — currently occupied by JD Wetherspoon.

Looking ahead to 2016, we expect the freehold market in London to remain strong, with good levels of investor interest in the sector and a lot of transactions.

Nick Lyell is associate director in Savills' licence leisure team

Related topics: Property law

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