London property: what now?
As optimism in the economy rises, so do pub and restaurant property prices. David Harris takes the temperature of the market and asks if London is overheating
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or UK property prices there is London and then there is everywhere else. It is no different for pubs and restaurants, where the last year has seen London prices outstrip the provinces on every measure. But it is hard to make simple compari-
sons. In London, almost no restaurateurs own their premises freehold. It’s true that some pubs remain historic freeholds, but most restaurants are leasehold. The prices for both freeholds and leaseholds are sharply up, although the greater number of freehold pubs makes them easier to measure. In the capital, price rises are easily into double dig- its in percentage terms. For freehold pubs, Simon Chaplin, director at Christie & Co, says that prices are up 29% year on year. Outside London, price rises are less sharp and less widespread. Just as in the residential market, London is not only more expensive, but the gap is widening. Against London’s 29% increase, Chaplin puts increases at any- thing from under 2% in Scotland to 15% in the South generally.
Prices for leaseholds are harder to mea-
sure because there are so many variables. Graham Campbell, head of restaurants at
Fleurets, says: “There is a bit of a bubble in London (see panel), but everywhere else is a bit flat with very little growth in prices.” The price rises outside London are in exactly the places you would expect: Brighton, the wealthy South East generally and the centre of the big cities, like Man- chester, but not in secondary locations like
Is London overheating?
Asking whether the London restaurant and pub market is overheating is not quite the same thing as asking whether prices have reached their peak. Property agents in the sector tend to hedge their bets. Graham Campbell, head of restaurants at Fleurets, says he understands suggestions that London is overheating but immediately adds the proviso that the capital “is an extremely difficult market to predict”, underlining the fact that many agents think London prices have got a little way to rise yet. He says: “A lot of people are chasing a lesser amount of sites so that’s driving up prices.” For restaurateurs it is not just rents. In central
www.thecaterer.com
Price increases in pub freeholds in the year to date
road sites which can do between £20,000 and £40,000 of business a week. These pubs have seen an increase in price.
THE MIDLANDS, EAST ANGLIA, THE NORTH AND SCOTLAND
UNDER +
2% +9% SOUTH WEST +15% +29% LONDON SOUTH OF ENGLAND Source: Christie + Co
Ipswich or Sunderland or Carlisle. Simon Hall, Campbell’s colleague at
Fleurets who heads up the pubs markets, describes pub prices as “all over the place”. It’s a hot market for some sites, such as the managed food-led pubs that companies such as Whitbread, Greene King, Marston’s and Mitchells & Butlers are looking for. By and large, the requirement here is for main
Less upwardly mobile have been the ten- anted pubs leased to individuals by compa- nies such as Punch and Enterprise. Punch alone has sold 3,000 pubs since 2007, many of which have been converted to residential or alternative use. Not all though. Hall points out there are actually more freehold pubs in the country now than there were five years ago, partly because many formerly tenanted pubs are now owned by their landlords who bought them from the pub companies that offloaded them. Local operators who concentrate on their locality are also important in pushing up prices, say agents. Ross Kirton, director of licensed and lei- sure at Colliers International, points to recent freehold deals such as Fuller’s buy- ing the Harp in Chandos Place in the mid- dle of London and Young’s buying the Fox & Anchor in Clerkenwell for £4.3m. Kirton says: “All of these are high prices as a result of London brewers bidding competi- tively for sites in their tight target areas.” These are prices that the North of the country cannot match, but that doesn’t mean that prices won’t rise soon. One of the rea- sons for the cheapness of pubs in the Mid- lands and the North is the large number of receiverships and pub company disposals, but with the recovery well under way, those prices won’t last forever.
London, they typically pay a premium over and above rent just to get into their building. In one case, which Campbell recently dealt with, the City of London’s Madison restaurant, the new owner paid £4m of this “key money” to take over the remaining 21 years of a 25-year lease. This is no game for shallow pockets.
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Ross Kirton, director of licensed and leisure
at Colliers International, adds that London restaurant prices continue to go up because London “offers a unique proposition to operators in terms of affluence and diversity” meaning operators need to be particularly innovative in the capital.
September 2014 | Restaurant Insight Report
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