Cash is king as funding stays tight

Pub prices stay firm but market is ‘over-supplied’, agent says


CASH buyers will hold the upper hand when it comes to buying pubs, restaurants and hotels this year as access to funding remains challenging.

In its Business Outlook 2012 document, published last week, Christie & Co said although the emergence of new lending vehicles is encouraging for small businesses, a lack of debt financing could impact on larger deals.
The agent said the steady stream of businesses it expects to come onto the market this year will give cash buyers an opportunity to “fill their boots”.
That average prices for businesses in the sector fell last year is also expected to contribute to buoyant market conditions.
Restaurants and hotels took the biggest hit, with average hotel prices down 5.1% across the UK last year compared to a small increase of 0.1% in 2010; restaurants saw a 4.1% drop in average prices in 2011 after prices rose 4.6% the previous year.
As for pubs, average property prices stood relatively firm, falling 1.1% last year after a 0.9% drop in 2010.
Neil Morgan, head of pubs at Christie & Co, said the small fluctuation demonstrates the continued resilience of the pub sector.
“Though clouded by the general economic malaise, 2011 has given the pub sector grounds for optimism, with average prices holding up and increasing numbers of pubs staying as pubs after being sold,” he said.
“Moreover, of those pubs that do close, we are reassured by a growing number that are retained for some leisure use, such as restaurants.
“However, the pub market is still over-supplied and we need to lose a further 2500-3000 over the next few years if we are to achieve a truly sustainable and vibrant pub marketplace, offering choice and better quality for consumers.”
Looking ahead to the rest of 2012, Christie & Co expects a steady stream of businesses to come onto the market as banks release further assets and pub companies continue to offload outlets.
Chairman David Rugg said although funding will remain challenging for some, there will be no shortage of opportunities. “We have a slight concern that the majority of funding is aimed at small businesses,” he said.
“Whilst this is heartening for this market, it could leave a drought of debt finance for larger transactions and, crucially, for start-ups, which were not well-served by the government’s Project Merlin funding.
“Emerging investors, fresh ideas and new businesses should be encouraged more than ever as we continue to face up to economic conditions that once again look certain to dominate the year ahead.”