Restaurant and pub property prices bounce back

January 23rd, 2015 by markflynn

Restaurant business property prices increased by 11.1% in 2014, while pub prices were up 8.6%, as confidence in both sectors improved.

That’s according to the Christie + Co Business Outlook 2015, released this morning.

Restaurants

While the largest growth in restaurant prices was in London and the South East, Christie + Co’s director and head of restaurants Simon Chaplin said that prices had risen across the country as the economy improved and more discretionary spend became available.

However he warned that there were signs that the London market could overheat if prices continued to rise.

“London may – and I stress may – be overpricing itself. The rents are getting very high now but there is still an appetite and if people are still prepared to pay £500,000 or £1m premiums then the landlords will always know there is more room in the rents to be had,” he said.

Around 82% of the restaurants Christie + Co sold during the year were put on the market on behalf of individual vendors, Chaplin said. Although he also pointed to a strong appetite for those sites among groups, particularly casual dining groups, as they attempt to grow their market share.

“Up until this time last year there were about 10 groups that had 100 sites. Now you have lost Gondola and Tragus, that number has gone down and there are not that many groups with over 100 sites. But there are lots of burgeoning groups that have got maybe 12-15 sites, up to 30, 40 or 50. The small groups with backing are going out there buying sites from existing operators because that is a quick way in. Speed is of the essence with some of these properties,” he told The Caterer.

Pubs

Meanwhile, Christie + Co director and head of pubs Neil Morgan highlighted the fact that the majority of unviable pubs had now been sold off, with the quality of assets on offer over the past 24 months improving.

“This has now left an industry that is leaner, fitter and more sustainable,” he said. “The volume of distress driven disposals has declined over the past couple of years, as has the percentage of pubs sold for alternative use. Some 80% of pubs were sold for ongoing pub use – a 13% increase on the previous year,” he said.

Once again, there was strong appetite for new sites among multi-site operators, who bought 75% of the sites sold during the year.

Meanwhile, the freehouse market has grown steadily over the past few years as pubcos released assets back into the market to pay down debt. There are now more pubs in private ownership than ever before and Christie + Co said it expected to see the number of privately owned freehouses – currently 20,000 – overtake the number of tenanted and leased pubs by the end of 2015.

One area of uncertainty, however, is the effect that the addition of Market Rent Only Option, which would effectively see the beer tie scrapped, would have on the pub property market were it to be approved by MPs.

The proposed changes could affect up to 30% of pubs in the UK and would have the biggest impact on the industry since the Beer Orders in 1989, according to Christie + Co.

“It is difficult to say what impact it would have at this stage,” said Morgan. “The two words that everyone is using in relation to it is the “unintended consequences” of what it will bring. I think it will accelerate disposal programmes.

“We could also see the tenanted and leased pub companies looking at the managed/franchise model but I think up until we are entirely clear what is happening you might see some of the tenanted pub companies slowing down their investment programmes. Whatever happens I think the sector will recalibrate – it did it in the beer orders of 1989.”

Published by: The Caterer

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