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Thu 5th Jan 2017 - Freehold pub sales increase 150% as mix moves away from bottom-end, leasehold and package market
Freehold pub sales increase 150% as mix moves away from bottom-end, leasehold and package market: Freehold pub sales increased 150% as the mix moved away from bottom-end sales, leaseholds and packages in 2016 according to agent Fleurets’ survey of pub prices. This has resulted in an improvement in the quality of pubs being sold and an increase in the average sale price. Despite the political, legislative and economic uncertainty of the past 12 months the pub property market reached the end of 2016 with relatively little turbulence. In the year ahead, Fleurets said it anticipated activity would “remain solid in transaction numbers and prices are likely to show more modest growth, as the increased rates burden affects the bottom line profitability for many programmes”. The average freehold sales price was up 4.9% to £363,543 with bottom-end sales volume down 28%. The leasehold sales price was down 18% to £39,801 with sales volumes down 20%. The report said pubcos were being innovative to ease the impact of the Market Rent Option (MRO). It added: “Brexit has not impacted on transaction volumes either individually or in packages, as many might have expected. A number of deals were lost and attempts were made to renegotiate the odd transaction at the time of the announcement, but on the whole deals that had been agreed went through as planned. On an individual level the attraction of very low interest rates and positive trading performance has seen purchasers prepared to simply ‘do some business’, despite what may or may not happen in Europe. At corporate level, particularly for venture capital backed package deals, increased scrutiny alongside an underlying caution left some sitting back to see what happens. How long this continues remains to be seen, but deals are waiting to be done and temptation will eventually overcome caution. Trump-mania permitting. The Pubs Code stuttered into existence on 21 July 2016, the key element of which was the MRO. Several months in, and we are still waiting to see what effect it will have on rents, values and market activity. Surprisingly for some it has not generated a flurry of disposals by pubcos seeking to avoid the effects of the MRO by selling off the problem. Instead pubcos have innovatively managed the impact by offering new tenancies not leases, offering existing lessees attractive deals to move to new agreements, in some cases buying back leases and, of course, setting up managed divisions capable of taking pubs under their control at lease expiry. What is perhaps more of a surprise is that, until the announcement about Punch in December, we hadn’t seen any significant package deals from the major pubco operators. In a similar way that the Beer Orders of 1989 resulted in massive pub estate for brewery swaps to circumvent the legislation, many expected similar reactions to be seen. Having witnessed strong levels of portfolio activity in 2014 and 2015 there has been a significant reduction in group deals this year. 2015 deals included Tattersall Castle, GRS Inns, the NewRiver Retail purchase from Punch and of course the Spirit sale to Greene King. 2016 has seen just one significant deal, being the Liberation Group management buyout.” The report showed 62% of all freehold pub sales remained as pubs – 69% in the south and 59% in the north. All pubs sold for pub use were sold on average for 38% more than for non-pub use. Out of all the freehold pubs Fleurets sold, the average sale price for a pub use was 38% higher than the average sale price for alternative uses, with a similar differential between the north and south. The report said: “Out of the pubs sold for alternative use the largest proportion were sold for residential use (50%). Restaurant use increased significantly to 18% of all alternative uses (7%), whereas retail uses declined to just 5% of sales (12%). The now ubiquitous convenience store stayed at just 3% of overall non-pub uses.”


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