Property agency Christie & Co has published its mid-year review on the pub sector, which looks at the activity, trends and challenges in the first half of 2021. Here is its verdict on how the market is shaping up…
For the UK pub sector, the first few months of 2021 offered no respite from the turbulent year that 2020 turned out to be, with businesses forced to endure another round of closures, as a second wave of the virus took hold and pushed us into a third national lockdown.
Yet, against this challenging backdrop, the transactional market has remained buoyant over the past six months and investors continue to be attracted to the sector, with many keeping a positive, long-term view towards opportunities.
A renewed sense of confidence was injected in the market off the back of the government’s Lockdown Exit Roadmap and Budget announcements during Q1, along with the successful vaccination roll-out programme.
Pubs were finally allowed to reopen on 12 April, albeit for outside trading only. Encouragingly, operators saw a positive response from consumers following this date, despite some challenging weather conditions, which translated to improving like-for-like trading performance and suggests the bounce-back for the sector will be strong.
During June and July, the UEFA Euro 2020 Championship also provided a great boost in sales, especially in light of ‘Freedom Day’ being pushed back from 21 June to 19 July.
As part of the Chancellor’s Budget announcement in March 2021, the government extended its extensive support measures, including furlough, CBILs loans and the moratorium on commercial forfeiture, which was subsequently extended to March 2022, meaning the wave of distress that we anticipated for Q2 has not yet materialised.
Many businesses remain in a state of ‘hibernation’, having accessed the range of support measures made available to them, yet increased distress activity seems inevitable once this is curtailed from Q3 onwards.
In our recent Sentiment Survey, the maturing of CBILS loans was a key challenge identified for the second half of 2021, with 54% of respondents who took out a loan saying they expect repayments to impact their business. This may drive more operators to sell.
There was an uptick in corporate activity during Q1 as buyers were attracted back to the sector and some operators began to divest their portfolios.
Christie & Co announced the first transaction of the year, with the portfolio sale of ten managed pub restaurants owned by Red Mist Leisure Ltd to private equity backed Red Lion Holdings for an undisclosed sum.
Red Oak Taverns continued with their pub estate expansion plans by acquiring ten pubs from Wells & Co, with Christie & Co acting on behalf of the sellers.
Between March and May there were three sales, with Stonegate selling 42 former Ei Group properties to RedCat, the new investment company of Rooney Annand, followed by the acquisition of nine bars by Nightcap Group from Adventure Bars and the sale of six public houses by the Administrators of Seafood Holdings Ltd to Oakman Inns, which was handled by Christie & Co.
This activity should increase further from Q3, once the sector gets back up and running, as pubco’s will begin to re-evaluate their estate, after reflecting on trading results since reopening.
This has been evidenced by the recent news of Young’s selling majority of their 56-strong tenanted estate to Punch Pubs for a reported £53m. Christie & Co are currently advising on a number of portfolio transactions which we hope to announce over the coming weeks and months.
Throughout H1, investors were eager to acquire good quality properties in attractive asset classes, with freehold opportunities in rural and coastal tourist-led locations drawing the most interest ahead of Freedom Day in July.
However, the volume of opportunities coming to market has remained limited to date and has been unable to satisfy the demand, which has led to competitive bidding in some cases. For the most part though, prices have held up relatively well.
The lack of stock is likely due to operators being focussed on reopening and wanting to take advantage of pent-up demand when consumers could return to the pub.
Feedback from our network of business owners also suggests many operators are hoping to capitalise on the anticipated summer boom, delaying plans to sell as a result.
Although we expect this to shift from Q3 onwards, as increased revenues over summer should give people more confidence to obtain a valuation and test the market.
Limited stock has been frustrating for private equity investors. Over the past six months, our team has received increased enquiries from this investor type however, the lack of opportunities of scale and perceived value has restricted their ability to grow at the rate they anticipated.
Challenges also remain for certain areas of the market, particularly city centres, as the third lockdown period has prolonged people staying at home, along with working and studying remotely however, we have begun to see some early positive signs that this is shifting.
Increasing numbers of workers have slowly started to return to the office part-time and we expect to see a real shift from autumn onwards.