Property specialist upbeat about pub trade for 2018

19-Jan-2018 - Last updated on 23-Jan-2018 at 10:15 GMT

Positive outlook: Christie & Co's Business Outlook report 2018 has an upbeat tone for the year ahead

Related tags National living wage Public house

Adviser for buying and selling businesses in the hotel, pub, restaurant sectors Christie & Co launched its annual Business Outlook report with a positive attitude towards the year ahead and embracing change.

The event to launch the Business Outlook report, hosted at The Institution of Engineering and Technology, Savoy Place, central London, included an introduction from Daily Politics broadcaster Andrew Neil, who gave a positive overview of the UK's economic standing and a whirlwind tour of global politics before later chairing a Q&A session with Christie & Co's sector experts.

Christie & Co global managing director Chris Day’s opening statement read: “The persistent economic uncertainty that has hampered activity for 10 years may have finally broken, heralding the start of a more positive period for businesses that embrace change.

“There is much to be upbeat about as we go into 2018.”

Andrew Neil gives a positive view on the UK economy and insight into world politics at the @ChristieCoUK Business Outlook 2018 launch tonight #CBO18 pic.twitter.com/mJgTXzKzcc
— SimonChaplinCCo (@SimonChaplinCCo) January 18, 2018

The section focusing on pubs, compiled by Neil Morgan, managing director of pubs and restaurants at Christie & Co, who was unable to attend the launch event, opened with the comment: “Despite the headwinds, innovative operators will continue to boost the sector and offer investors steady returns.”

Highlighting the key takeaways from the report, Morgan stated that it had been a “busy year” for the pubs team.

Tough market conditions

Morgan said: "We found that many operators are finding the market tough with regards to rising cost pressures. Elements of that are the increase in the national living wage, pensions, apprenticeship levy, business rates revaluation, along with the rising utility costs and the weak pound.

"Clearly, where operators are becoming more savvy is they're improving margins to negate that – part of which is adding additional income streams such as accommodation. For others, the national living wage has actually helped secure staff retention. So obviously with that you reduce your recruitment costs, customers get a better experience of service, and you get a better productivity out of your staff as well.

"One thing you've found is that with that the number of significant deals has declined. If you look at this year there were really only six significant deals that were done – £10m plus – whereas if you go back to 2006-07, there were 26 deals done of £10m or more.

“So you can see what's happening is that you've got a shrinking pond of availability of potential portfolio deals, but you've got an ever-increasing number of private equity and trade buyers interested in acquiring assets, which obviously is going to have a positive effect on values."

Increase in multi-site operators

Morgan highlighted the recent increase in pubs Christie & Co has sold that are staying within the trade as an encouraging takeaway from the report.

"Last year, 84% of the freehold pubs we sold stayed as pubs. This year it's gone up by 1% to 85% – that's an 18% increase overall in five years.

“So for us, last year, the big take was that it was a strong private market, and we had an increase in the number of first-time buyers and operators coming into the market. So despite all the negativity surrounding all the cost pressures, weak pound, etc., there's still people who still feel that pubs are a viable entity in business."

Key numbers – Business Outlook 2018

85% of pubs sold by Christie & Co remained as trading pubs
18% increase in the number of first time buyers and private operators acquiring pubs
49,000 pubs currently remain in the UK – a decrease from the market’s 2006 peak at 58,000 before the smoking ban and sub-prime lending fall out.
Six deals of £10m-plus were completed – compared to 26 at the market’s peak in 2006
3.8% movement in average property prices, year on year.

Forecasting what 2018 could look like in pub property, the report mentions that operational and financial pressures will be “broadly similar” to those witnessed in 2017.

Morgan revealed: "The general summary I'd say is that the sector is really resilient. I know we've touched on cost pressures and been a bit negative about it, but the sector is resilient as it has been during the smoking ban. The pub sector is very good at adapting and evolving."

"There will still be a strong demand for managed houses. At the moment there are only 9,500 managed houses remaining in the UK. If you take out those that are unlikely to come to the market any time soon – a bit like Marston's managed, Greene King managed, M&B, etc., you're down to about 3,500. That's quite a small number bearing in mind the amount of activity and interest, in particular from private equity that see freehold being the key element with freehold properties underpinning values.

"I think we'll continue to see an increase in multi-site operators. The tenanted market table has turned, we had a period where the tenanted model was a bit under strain and not really attractive due to the pubs code, but now that has changed.”