Freehold pub prices up 4.9% as the pubs code takes effect
The sale price of freehold pubs rose by 4.9% this year, according to a survey of pub prices by property agency Fleurets.
This year saw the introduction of the pubs code, introducing the Market Rent Option (MRO). However, the industry is still waiting to see what effect this will have on rents, values and market activity. It was thought that pubcos would be quick to dispose of sites to avoid MRO, instead they have been offering new tenancies rather than leases.
This resulted in a rise in freehold volumes, which were up 150%, while the number of leasehold pubs dropped by 20% resulting in an 18% decrease in leasehold sale price.
Freehold freehouse sale prices in the North rose by six times (18%) more than in the South (3%). The increase of average sale price in the North, according to Fleurets "reflects the improved quality of properties sold with fair maintainable trade".
The bottom end freehold pub market remained relatively steady, with sale price in the North up 0.6% and 3.4% in the South. Fleurets does not "envisage the bottom end pub market will change much over the next 12 months".
Leasehold sale prices dropped at a similar rate in the North and South. This has been credited partly to the MRO legislation and rise in sales: "The uncertainty that has prevailed over the Pub Code and MRO legislation has impacted on the leasehold pub market. The actions being taken by some of the big six pubcos increased the uncertainty over the leasehold assignment market. Even though it has now been implemented there is little clarity as to how the market will react. This looks set to continue well into 2017."
Brexit has not impacted on transaction volumes, as was first feared, the report claims. Low interest rates has seen buyers completing deals, regardless of the UK leaving Europe.
However, there was a reduction in deals this year. Last year's deals included Tattersall Castle, the New River Retail purchase from Punch and the Spirit sale to Greene King.
This year, there has just been one significant deal, the MBO of Liberation Group for £118m, led by Caledonia Investments involving 94 pubs in the Channel Islands and the West Country, two breweries and three wholesale businesses.
Thinking about the year ahead, the report said: "Much depends on the world economy post nthe Brexit vote and Trump election. The only certainty is uncertainty. However, in the year ahead: we will still be part of Europe, interest rates will remain low, taxation might ease on the pub sector and performance will be resolute. We anticipate activity will 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."
Fleurets also analysed all of its freehold pub transactions to see what they were used for after being sold. During the year 62% of pubs sold by Fleurets remained as pubs, up from 50% the year before.
The average sale price for pub use was 38% more than for alternative use.
Freehold pub prices up 5.5% as sales volumes fall >>
Pub sales down but prices up in 2014 >>
Number of pub sales rises 38% in 2013 >>
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