What are the current trends in the property market?

Paul Davey, the co-owner of independent specialist business agent Davey Co, sheds insight into where people are purchasing pubs. He says: “We have found the south of England has proved the most popular over recent months.

“From the Midlands down to the south coast, from Wiltshire and Gloucestershire in the west, across to East Anglia, Essex and Kent in the east and all points in between – but generally outside the M25.”

Davey has noticed a shift of people moving out of the cities and urban areas. Popular regions to buy pubs in include Berkshire, Buckinghamshire, Hertfordshire, Oxfordshire, Warwickshire, Wiltshire, Dorset, East Sussex and West Sussex.

Within these areas, market towns, suburban, village and destination venues are seeing the strongest demand.

This is something echoed by Sidney Phillips regional valuations manager Robert Cockayne, who says the south west and eastern counties are continuing to draw rising numbers of buyers looking for a lifestyle change out of the London and south east markets.

Rural and semi-rural pubs are currently the most popular purchase says Cockayne – especially food-led ventures with letting accommodation.

Although the demand for town centre venues has dropped since the pandemic, Sidney Phillips is starting to see a resurgence in the desirability of the old school wet-let pub once again.

Christie & Co regional director Richard Wood has also seen a resurgence in wet-led opportunities. While 12 months ago you’d be looking at mostly food-led pubs, he says the staffing crisis means people are looking to balance income streams with a split between wet and dry, with rooms also desirable.

He adds that the best prices have been achieved in honeypot locations, like Cornwall and the New Forest.

Where are people buying pubs?

“Your quintessential charming village pub is still very desirable,” he says. In these places, buyers are able to draw in from the surrounding wealthy rural villages.”

On the other hand, Everard Cole has seen much more activity in the and the midlands than in the south, which may be value driven as property prices in the southeast are traditionally much higher, says Tom Nichols.

He says the highest activity was being seen in Leeds and Manchester, followed by Nottingham then Cambridge.

According to Charlie Noad, senior surveyor in the licensed leisure team at Savills, when assets are priced correctly in the market, they will sell no matter the geography.

Activity remains spread domestically, so the geography of the transactions really reflects whether the vendor has met or accepted the state of the market.

“If vendors’ price expectations don’t correlate with the current market conditions, then the opportunities most likely won’t present themselves,” says Noad.

Up north, the average price of a pub is roughly around £300,000, he adds. Savills has seen quite a lot of cash-funded buyers, and the number of people looking to get bank lending of property purchases has slowed, due to high interest rates and difficulty in securing funding.

Noad thinks this is probably why Savills is seeing pubs up north selling a bit more frequently.

What's going on in the freehold market?

He also gives insight into the freehold market: “From an alternate use perspective, freehold pubs remain of interest to investors and developers due to the amount of property you can acquire for your money, yet relatively modest pricing.

“However, most are realising that the planning process for change of use is becoming more challenging, and that remains a hurdle for buyers of freehold pubs for alternate use.”

Savills has also sold a number of investment properties in the last year, so far let to both corporate and individual licensees, which has attracted mainly well-funded local investors.

Furthermore, Savills has found the freehold market has been much slower in the past 12 months with buyers taking their time on transactions.

The rise in cash-funded purchases means properties above £500,000 are harder to dispose of. However, there is still reasonable liquidity in the market below this level.

Furthermore, Savills has noticed deals are taking longer with less competitive bidding. Funding has also become increasingly expensive and difficult to secure. The amount of freehold stock is increasing, but nowhere near to the levels seen after the global financial crisis, where pub tenanted companies offered large scale disposal projects.

Christie & Co senior director of pubs & restaurants Neil Morgan says the leasehold market has been particularly strong, with securing funding for buying freehold assets tough at the moment.

He adds: “We’re seeing really strong activity in London, particularly on those tied and free of tie leases, and we’ve seen deals done at or in excess of the prices we’re quoting.”

Christie & Co has also seen a speed up of 22% on deals that were being transacted from the agreed to offer stage to completion.

“Cash is king,” says Morgan. “More than 80% of deals we’ve done are cash.”

Funding is what’s holding the freehold market back, says Wood. It’s the traditional mid-market which requires bank funding that is challenging.

Everard Cole’s Nichols adds: “In terms of trends, we’re seeing much more activity under £500,000, certainly in the south, and under £400,000 in the north. That sector has been very active over the last 12 months, and we’ve seen increased activity in the past six to eight weeks. Contrary to what the market might be saying, enquiries are up.

“We’re not seeing any significant activity in the higher end of the market at £1m plus and that’s where the managed operators generally acquire.

“There is corporate activity, but it’s more in the tenanted-leased sector, rather than with the managed house operators.

“We have also seen some operators that want to expand switch to free of tie leases as they don’t want to take on expensive debt.”

Cockayne says demand continues to outstrip supply on the open market. He adds: “Encouragingly, capital values have remained fairly consistent when compared to pre-pandemic statistics.

“The value of the going-concern element of pubs has however negatively been affected by increasing costs and expenditures associated with the trade, resulting in a general drop in profits across the board.”

Davey says good freehold sites are currently sought after, but quality of location and facilities are the key must-haves. Prices are holding up will in the freehold market, dependant on these two factors.

Davey Co is also finding many freehold owners are keen to offer the business for sale on a leasehold basis with a freehold purchase option available to the lessee.

CBRE has noticed that investment yields for pubs have softened, or got higher, in recent months, which senior director Simon Johnson believes in part reflects the rise in UK interest rates.

There have been a few packages of operational pubs coming to the market and selling in the last couple of years, but he thinks the recent sale of the freehold tenanted pub division of Cameron’s indicates there is still a strong market for well invested freehold pubs.

Johnson says: “London remains a strong market for freehold pubs as UK and overseas high net worth individuals still want to own a piece of London history and real estate.

“In the provinces, the most important thing is increasingly the quality of the tenant covenant and the ease with which the pub could re-let in the event of a vacancy.”

Market trends

What other trends have the businesses noticed in the property market? Cockayne says: “The industry continues to draw in fresh blood, with experienced first-time buyers very active in the market, such as those with experience like chefs or management experience seeking to take on their own venture.

“While corporate buying activity has dropped, there are still a number of active corporate buyers prepared to acquire prize assets.”

Morgan predicts the national and regional pubcos will trim their estate, and dispose or loss-making assets from their estate, and these will be acquired by private, traditional freehold freehouse salers.

He says: “This has to be great for the industry in terms of the offering and variety of different types of operation.

“What you are seeing is a reduction in numbers, but hopefully what’s left is a good, strong core viable industry.”

Christie & Co has seen a lack of distress which has helped keep prices reasonably strong. It has also seen very few sizeable portfolio transactions this year versus previous years. Morgan says: “It’s a case of, if you don’t need to sell, why would you sell at this present time?”

Wood has seen a huge demand for tenanted pubs from pub companies, with the volume of transactions in September “really encouraging”.