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Market Activity In The Pub Sector Became Increasingly Polarised In 2023

Property specialists Fleurets have released the latest Survey of Pub Prices report, revealing the pub sector market activity in 2023

The key features of the report include:

  • Average Freehold Sale Pirce £545,736, -23%
  • Polarised market demand
  • No significant increase in supply
  • Multiple of turnover down

The report reveals that the market for many changed following the mini budget on 23 Sept 2022. When Liz Truss became Prime Minister earlier in Sept 2022, CPI inflation had already been at 9-10% for 6 months and the Base Rate had started to increase (up 1.5% in the previous 6 months) but there was still good demand in the pub market, a shortage of supply and transactional volume was steady.

The Kwasi Kwateng mini budget, however, wasn’t received well by the economic marketplace and it proved to be a turning point in the level of activity in the pub sector. Base rates increased a further 2% in the following 6 months (7 increases in 11 months), reaching and then remaining steady at 5.25% in August 23, as inflationary pressures started to ease. Not only did the cost of borrowing increase substantially but we saw a tightening of the mortgage market, making it both difficult and expensive to borrow. We saw more lending activity from the challenger banks than the High Street Banks.

According to Fleurets’ 2024 Survey of Pub Prices the economic environment following the mini budget greatly reduced transactional activity in the pub sector. This was driven by the increased cost of capital as well as a lack of confidence in the economy.

“In general terms the market polarised, on one side, cash rich buyers were still willing and able to purchase assets that met their criteria, and as a result values remained firm. On the other side buyers needing finance to acquire, found either capital was unavailable, or the cost of borrowing was prohibitive when considering market conditions and reducing economic confidence.”

Furthermore there was a perception in the private market that cost pressures would result in operator distress and therefore an increase in supply, which in turn would offer greater opportunity and value. This has yet to materialise they say.

The activity Fleurets saw was increasingly driven by Tenanted and Franchised Pubco’s. Red Oak, Trust Inns, Punch Taverns and several regional Brewers were active, as were the relatively new “franchise” (Managed Service Agreement – MSA) operators like Valiant and Inglenook, who, backed by substantial funding and with a model already proving to be very successful for concepts like Craft Union and Amber Taverns, rapidly acquired and refurbished underperforming wet led pubs.

Fleurets say they also say many of the mainstream managed operators who had been active in 2022 stepped out of the market, pausing acquisition plans in the face of concerns over cost pressure and a squeeze on disposable income. Only towards the end of the year did we see the first large food led managed house operators actively looking to acquire individual sites again.

In the North of England, Fleurets says that Buyer profiling has been critical in setting an appropriate price in the last 12 months. Purchaser requirements are very precise and fairly minor factors can make the difference between achieving a sale at a decent price and not achieving a sale at all. For example, a small change in

the wet/dry split can make a big difference in the expected sale price. Fleurets say that understanding this is key to success in a polarised market.

They’ve seen activity in the leasehold market being busy with lots of lease assignment and new lettings to individual operators and small multiple independent operators. These are, however, primarily of fitted or partly fitted free of tie units on low or nil premium deals.

City centre activity, according to Fleurets, has continued with some highly focussed operators seeking to take advantage of reduced activity from national brands to secure good quality sites, sometimes for sizeable premiums, where previously they would not have been considered.

Fleurets have seen strong interest in closed pubs for a variety of alternative uses – primarily for residential and retail developments. In addition, they have also seen a significant increase in the number off market deals with many private vendors unwilling to expose their business to an open marketing campaign but being willing to sell if the right offer was received.