Licensees have unrealistic assumptions of the prices they can obtain for their pub properties, members of the Association of Valuers of Licensed Property (AVLP) have revealed in a survey.
The AVLP members were polled over the state of the UK pub property market in 2017. Some 96 ALVP members took part, which included senior representatives from most of the UK’s leading licensed property agents and valuers.
The survey reveals that 84% think licensees have “unreasonable expectations” of the prices they can achieve when selling their property. Only 16% of members think that licensees have a reasonable idea of what prices their property is worth.
Dan Mackernan, director at property agent Savills and honorary secretary at the AVLP, says many of the licensees with high expectations are those who have worked in their pub for 15 or 20 years and are now looking to sell.
Just under one third of valuers (31%) believe that the market is less buoyant than last year, 22% think it is more buoyant while almost half (47%) think it is the same.
This is in direct contrast to the figures from last year’s survey in which 72% were saying the market was more buoyant. This is perhaps showing the impact of Brexit, economic confidence and increased operating costs on the market over the past year.
Mackernan also points out that while the results from the AVLP survey covers the whole of the UK, it must be recognised that London is a different market.
“The results reflect a more national trend as the London market is more buoyant,” he says.
Strong demand in London
While there continues to be strong demand for pubs in London, only 16% think there are more people wanting to buy freeholds now than there were three years ago.
Just under a quarter (23%) say there are fewer operators wanting to buy freeholds while two thirds (61%) say there are the same number searching for freehold pub sites.
This is also another change to the previous year’s survey. At that time, 78% of valuers were saying that more people were wanting to buy freeholds.
Considering how the sector has changed in the past year with the prospect of Brexit, the pubs code, market-rent-only (MRO) option and business rate hikes, it is unsurprising that more than half of valuers (55%) say fewer people are looking to purchase leaseholds. Interestingly, this figure is similar to last year indicating that the desire for leaseholds was already slowing down in 2016.
But 35% of valuers say there are the same number that want to buy leaseholds as there was three years ago while only 10% indicate that more people want leaseholds.
This has also had an affect on prices and the predictions of the AVLP members. A whopping 80% think that freehold property prices will not increase in the next year. This is also a change to last year’s results with 38% of survey respondents saying that prices would increase while 62% believe they would not.
More interestingly, only 9% of valuers think that leasehold prices will increase in the coming 12 months while a whopping 91% think they will not.
Mackernan says there could be a number of factors affecting the sector. He highlights that the “lack of confidence” could be due to some pubcos offering shorter-term leases as they consider taking pubs back into their managed estate.
Shorter-term leases inevitably mean that the value of the lease is worth less and that would affect lessees’ ability to reassign.
Dramatic leasehold changes
There is also the impact of MRO. While MRO has been the hot topic over the past few years, there has been a dramatic change in the leasehold marketplace.
Mackernan says the result is that pubcos are more willing to negotiate at lease renewals for agreements such as a free-of-tie agreement.
“I have seen a lot of different arrangements being agreed,” he says. “There is the uncertainty of the MRO process and people are saying it is a hassle. [Pubcos] are keen to do a better deal and there is lot more variety of deals on the table than a year ago.
“You also have food costs, inflation, Brexit and the new rates bills. People thought MRO was going to be brilliant but it is painful and no one has gone though the process.”
The survey also asks valuers about the standard of applicants taking on licensed properties over the past three years. This was a close split with 52% thinking the quality of licensees has improved and 48% that it has worsened. This was similar to last year’s figures, which were 60% and 40% respectively.
AVLP members were also presented with a question on how long the average tenant would stay operating in their pub compared to three years ago.
Of the valuers surveyed, 87% say that tenants are staying the same or a shorter time in their pubs. Only 13% believe licensees are staying longer in their property.
Work still to be done
However, despite all the attempts to improve the relationship between tenants and their landlords, it would seem that there is still a large amount of work to do.
Just over three quarters (78%) of valuers say that their clients’ relationships with their landlord is the same or worse than three years ago, while 22% say partnerships have improved.
The past year has seen some changes in the views of valuers on how the market is performing. But the research shows that licensees need to have some more reasonable expectations about the prices they can expect to achieve when selling their property.
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