Commercial Mortgages

Article by Adam Bannister

Now could be the right time to buy a pub, according to a business broker specialising in the trade.

Far from discouraging buyers, the parlous state of much of the industry presents a great opportunity for astute buyers to pick up a bargain.

Writing in the Morning Advertiser, Joe Harvey of Savills Licensed Leisure says that “as many pubs are being forced to close or seek administration, arguably now is the time to seek out opportunities.”

Pub prices are falling because of extremely difficult trading conditions and the squeeze on credit.

“Pubs are principally valued on a multiple of profit, and previously this has been as much as three times the adjusted net profit for premium leasehold opportunities,” says Harvey.

“However, with like-for-like sales down, and operating costs continuing to rise, the squeeze on profits is being felt across the industry.

“Many leaseholders are now approaching the leasehold market with a greater degree of caution and multiples in many premium leasehold areas have halved to one and a half times the adjusted net profit.”

The dearth of credit and the industry’s manifold problems are reducing the pool of buyers considerably. Many pub owners will be asking themselves whether now is the time to get out before things get worse, or whether they should sit tight before the economy, and the value of their business, recovers.

What’s clear is that competing buyers are hamstrung by a lack of credit, so for people with plenty of cash in the bank this could be the optimum time to buy.

“There is a significant choice for a well-funded purchaser with a number of pubs on the market and several large pub estates selling poor-performance freeholds or converting managed operations to lease.”

It is, at present, perhaps the most difficult time in living memory for the trade. It’s one of the unluckiest trades going, with so many pernicious factors converging simultaneously: an economic downturn, rising costs fuelled by rising taxes and ingredient costs, historically cheap (in real terms) supermarket alcohol, the smoking ban... the list goes on and on.

And yet some pubs can still be goldmines. City centre pubs, those which serve food and those that have diversified into accommodation and even newsagency, postal services and other services essential to the community are often still thriving.