Closure of 1,000 pubs would create ‘sustainable equilibrium’

By Stuart Stone contact

- Last updated on GMT

Business outlook: according to Christie & Co, a total of 47,000 pubs represents a 'sustainable equilibrium'
Business outlook: according to Christie & Co, a total of 47,000 pubs represents a 'sustainable equilibrium'
According to specialist adviser Christie & Co’s Business Outlook 2019, the past 12 months could serve as a turning point for the British pub industry with more people than ever employed in the sector despite declining pub numbers.

In its latest Business Outlook​ report, Christie & Co has estimated that a further 1,000 pubs need to close within the next two years to reach a ‘sustainable equilibrium’ of 47,000 pubs nationwide. 

As mentioned in the report, the number of pubs in the UK has fallen by 28% since 1989 with 10,500 sites closing since 2000 according to figures from the British Beer & Pub Association (BBPA).

Gill Furniss MP recently stated during a debate on the pubs code in the House of Commons​ on 8 January that between April and September 2018, on average, 33 pubs per week closed – a current rate of 1,700 per year.  

However, Neil Morgan, managing director of pubs and restaurants at Christie & Co, argues that 2018 could serve as a watershed moment for the British pub.

According to the report, while the overall number of pubs has fallen, the increasing number of large pubs opening has led to a net increase in the total trade area and number of people employed within the sector. 

As reported by The Morning Advertiser​, the licensed trade has seen a 6% rise in jobs since 2008​, despite a dip during the recession, according to figures from the Office for National Statistics (ONS).

Commenting on Christie & Co’s Business Outlook​ 2019 report, Morgan explains: “As a result of the decline in pub numbers, improved trading performance and increased average prices, interest is expected to remain strong and investors can look forward to increased opportunity in the pub sector. 

“As highlighted in the 2018 UKHospitality Christie & Co Benchmarking Report​, freehold ownership remains a long-term aspiration for many operators, and we can look forward to strong performance across the sector in 2019, especially within the private pub market.”

The report also predicts that investors and private equity will be more willing to consider smaller scale pub group opportunities and that there will be a modest opportunity for value growth, driven by trading performance.

Rising cost pressures

According to Christie & Co, average overheads now account for 52.5% of net revenue – a 3% increase in the past two years – with the national living wage, apprenticeship levy and pension auto-enrolment all playing a part in significant increases. 

While the report highlights that property costs, primary rents and rates are also contributing to increasing operator costs, it also outlines that a wave of CVAs on the high street have led to rent reductions of up to 30%.

The report adds: “With limited opportunity to pass costs on to the consumer, margins are expected to erode further through to 2020. 

“The primary focus for many remains on driving top lines and sweating assets in order to overcome these challenges.”

Brexit fuelling staycation trend

Moreover, Christie & Co reveals that a wave of European tourists have visited the UK following the referendum on EU membership in June 2016.

It states: “Aside from the negative impact of some cost inflation, the devaluation of the pound following the referendum on EU membership has driven an increase in tourists visiting the UK and boosted the popularity of staycations. 

“As such, pubs with letting rooms have increasingly proven themselves as capable of successfully competing with both budget accommodation providers and the boutique market.”

Positive forecast for values

Discussing the report’s findings, Morgan said: “Our current view of the property market is that there's a really strong appetite for freehold back assets – from not only trade buyers but private equity and that the market at the moment is very much fragmented, which creates a lot of opportunities.

“Last year there were only 11 sizeable portfolio transactions and only one of them was over £50m – that bears out our view on the fragmented market.

“There was much reduced transactional activity last year than where we were in the heady days of 2007 when there were about 30 deals done.

“Another thing we did notice is the rise of the franchised model – pubcos are doing fewer leased deals. 

“Also – of the number of pubs we sold last year as freeholds and long leaseholds – 79% of those sold stayed as pubs, which is down 6% from last year. 

“That's probably down to a mixture of reduced private market transactions and our activities in selling bottom-end disposals, which tend to be sold for alternative use versus ongoing trade use. But it's still very much a healthy number.

“I think there's going to be continuing lack of good-quality stock but I think the demand will continue, which will outstrip supply for the right sort of stock and will have a positive effect on values.”

Christie & Co’s full report is available here.

To find out more about pubs for sale, lease and tenancy visit our property site.​ 

Related topics: Property law

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