Pub property predictions for 2016

By Ben Winstanley contact

- Last updated on GMT

Pub property predictions for 2016 in the freehold and leasehold market

Related tags: Renting, Mro

It's been a promising year for the leisure property market as confidence continues to return. We ask two agents for their thoughts on 2015 and what the year ahead has in store. 

Leasehold property

Stephen Taylor, MD of Guy Simmonds, takes us through his 2016 predictions for the leasehold market

Key leasehold considerations for 2016:

  • Private free-of-tie leases will continue to be in exceptional demand
  • PubCo rent levels have been advised to be more pragmatic
  • Uncertainty about MRO will be addressed

Private free-of-tie leases have been in exceptional demand in 2015 and we already have a waiting list of clients for purchases moving into 2016. There has also been an influx of commercial buy-to-let investors, in addition to retiring freeholder landlords, which I’d say shows this sector is even more buoyant than it has been in the last couple of years. I predict this will continue throughout next year.

The caveat will be that rent is pragmatic and the lease sustainable. There are many agents out there who put unrealistic rentals and premium on their properties and that’s not the way forward for landlord or tenant – you’ve got to be fair to both parties. For longevity in the market, landlords must always relate to the actual declared profits achieved in the accounts.

As a result of this, we have recently been advising certain PubCos on their rent levels. Interestingly, they are proving to be more receptive than previously. It’s in everybody’s interest for operators to be successful in the long term so rents must be sustainable, realistic and relate to the actual turnover that’s being achieved in the outlet. In the past, we have feared that landlords were operating with ambitious rental figures but the proof is in the pudding and market forces are dictating a positive change.

Elsewhere, the freehold market has lifted off for us in 2015 and is much more buoyant than previously envisaged. We believe this is also impacting on the number of free-of-ties because of a three-tier freehold market: there are companies looking to buy for change of use, there are those looking to operate and there are private investors looking to create free-of-tie leases. That’s the perfect synergy and I would say shows the market is looking very good going into next year.

As regards to tied leases, there is a degree of uncertainty that’s crept into the market with regards to the MRO. Uncertainty delays transactions and can negate them, something we fear is set to continue in 2016 so we are actively trying to address.

A big thing for us in 2016 will be addressing this issue so the market continues to move forward. Through our specialist helpline, we are actively encouraging purchasers and vendors to contact us so we can advise on their rights under Landlord & Tenant Act 1954, especially rights of renewal. It’s very much in the back of everybody’s minds at present and, as our job is to facilitate transactions, we’re doing more and more through our advisory service to put people’s minds at rest. Our main advice is for to tenants is to seek professional advice now so you are sure of your rights.

Freehold property

Paul Davey, MD of DaveyCo, takes us through his 2016 predictions for the freehold market

Key freehold considerations for 2016:

  • Impact of MRO will continue to restrict supply of premium businesses
  • ACVs will frustrate corporate sellers looking to maximise sale of asset
  • Steady economy and low interest rates continues to attract new entrants to the market

One of the main events that had the ability to derail the property market’s momentum in 2015 was the General Election. The threat of an in-out referendum on Europe could have affected the economy along with the market but, as it transpired, the end result removed this concern – although the market certainly quietened for a few weeks in the lead up to the result, the impact was largely negligible.

Economically, the market is steady: interest rates have remained low, which has certainly assisted the freehold market. Lending to the sector has improved and there is money to buy a pub as long as the buyer is credible enough to preserve the security of that asset. Related to this, a continued improvement in the residential market has fed through a growing supply of first time business buyers and new entrants to the sector.

Another prominent issue in 2015 was the uncertainty brought about by the relinquishment of the beer tie – how this would be drafted, negotiated and agreed. With this delayed, it remains unclear how market rent only will affect the pubcos and whether it will lead to significant disposals or repackaging. The knock-on effect has been a string of leasehold business owners unsure of whether to go to market, while they wait to see what scenario they can engineer going forward. This is resulting in constrains on the supply of premium business opportunities coming to the market.

The freehold market isn't that active now and remains divided between cheap freehold pubco disposals and the successful freehold sites that have significant goodwill value attached to the property. Going forward, what we are likely to see is a degree of breath holding with prospective purchasers in the freehold market thinking there may be another swathe of pub company disposals on the horizon.

Elsewhere, the effect of the ongoing ACV debate will ultimately prove to be a positive for the market long term, despite causing frustration for pub companies looking to dispose of poorly performing sites. ACV isn’t a flavour of the month kind of thing, preserving the number of pubs in this country is important, so there must be greater understanding from corporate sellers that they're not going to maximise the value of their property through change of use.

For private owners, however, the likelihood of making a good sale is more to do with it being a good business. Well-run pubs are in high demand and will continue to be so into next year. 

Related topics: Property law

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