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Wed 10th Jan 2018 - Freehold pub prices increase 14.6% driven by ‘increased quality’ of disposals
Freehold pub prices increase 14.6% with fewer but bigger portfolio deals driven by ‘increased quality’ of disposals: Freehold pub prices increased 14.6% as there were fewer but bigger portfolio deals in 2017 driven by the “increased quality” of disposals, according to a survey of pub prices by agent Fleurets. Despite the political, legislative and economic uncertainty of the past 12 months, property transactions in the pub market have shown remarkable resilience during the past year. The report said activity and sale prices had been driven by the “increased quality of transactions with higher trading levels and decentralisation leading to premium prices being paid for the best regional assets”. The average freehold sales price was up 14.6% to £416,624. Bottom-end sales volume increased 22%, while the sale price rose 24.5% to £271,998. The national leasehold sales price increased 31% to £51,980 due, in part, to a small number of premium deals, with volume up 24.4%. The report stated: “Market activity for package deals was dominated in 2017 by the sale of two of the three largest tenanted pub groups in the country. Heineken and Patron Capital split the Punch estate (3,250 units) and Proprium Capital and C&C Group acquired Admiral Taverns (853 units). These transactions showed great confidence in the continued viability of the traditional pub and the tenanted pub model, especially coming at a time when the effect of the Market Rent Only option legislation had yet to be fully appreciated. Increasing supply costs, the rates burden, National Living Wage increases and rising utility costs have put great pressure on managed operations over recent years and, as a result, we saw sizeable disposals in late 2016 and 2017 from a few managed house operators. These were a mix of package transactions and individual sales from Greene King, JD Wetherspoon and, most recently, a package from Mitchells & Butlers that sold to a new entrant into the operational market, Milton Inns & Taverns. Tenanted pubcos have continued to selectively shed underperforming sites with the most active and creative being Ei Group, which has not only sold individual sites but has sold packages of investment properties as well as expanding its managed estate. They have also taken great strides in offering large numbers of properties on free-of-tie leases – for all uses, not just for pub use. The reduced supply of bottom-end freehold pubs has continued. Lower supply along with continued strong demand for these sites has led to an increase in the sale price of lower-end properties. We have seen an increase in demand lead to higher prices being paid for units in city centres and higher-value towns. More buyers looking to decentralise from the London market, local operators seeking to expand, developers looking for an alternative-use angle and investors seeking to secure assets in prime locations have all been active in the market. 2017 saw an increase in the number of free-of-tie lettings being offered to the market, notably from Wellington Pub Company and more recently the Ei Group, but also from private owners seeking to retain their asset and generate rental income rather than sell. There was a very selective freehouse market, with prime sites selling for high premiums and more off-market transactions taking place.” The report showed 62% of all freehold pub sales remained as pubs – 68% in the south and 55% in the north. All pubs sold for pub use were sold on average for 48% more than for non-pub use. The report stated: “The most popular alternative use was for residential development or conversion, which increased its share to 64% (from 50%) followed by other retail at 8%, restaurant and convenience stores at 6%, and hotel/guest house at 4%. A variety of other uses were present including traditional uses such as offices, a children’s nursery and a care home but we also saw a number of more community-based uses including an education centre, a community centre, a performing arts centre, and a sports and social club. Interestingly, none of these more community-based purchasers were as a result of the pub being listed as an Asset of Community Value.”

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