JLL: Food key to pub survival

Forty five percent of pub owners reported falling in sales in the past year, with the North among the worst hit areas, according to research by Jones Lang LaSalle.

Jones Lang LaSalle Hotels' survey of pub investors and owners found those places which only sell alcohol, or 'wet' public houses, are facing a much sharper decline in trading performance than those with food on offer. Around 63% of public houses which sell food recorded an increase in sales over the last year, compared to a 66% decline in 'wet' led public houses.

Steven Tasker, associate director in the licensed leisure and hotels team in Jones Lang LaSalle's Manchester office, said: "Whilst conditions remain challenging for the UK public house sector, the medium-term outlook is positive, especially in London and the South East. The number of public houses closing weekly has also fallen from 37 to 25. There is a general sense of optimism, with the glass being half-full rather than half-empty.

"Financing remains a real concern; there is little appetite for banks to provide cash due to perceived risks. Loan-to-value ratios are typically at only 50%, which is stifling growth in the market.

"Social factors, such as the trend towards drinking at home, together with the general reduction in consumers' disposable income, are also subduing the sector. However, if a public house is well located, well run and offers something extra such as food, the outlook is relatively positive."

Jones Lang LaSalle's survey highlights that the current pub market is providing opportunity for well capitalised investors/operators to secure good quality assets which may offer better returns going forward. Around 55% of respondents to the survey, both buyer and sellers, stated that currently there was a difference in price expectation of between 15% and 20%.

Tasker continued: "Investors with sufficient balance sheet capacity and strong banking relations have been able to do deals and secure good quality assets as confidence grows that the bottom of the market has now been reached. There has been a continued move to quality and increasing polarisation of the sector which requires operators with specialist skills to target particular regions, areas or assets this trend is likely to grow and only strong operators, in good locations will survive."

Public house investors were asked by Jones Lang LaSalle to comment on the issues and problems they expected to dominate the UK pub industry over the next year. The fall in disposable income was cited as the main concern, by 34% of respondents. This was followed by competition from 'off trade sales' the availability of discounted and cheap supermarket alcohol with people staying in and drinking at home at 25% and the availability of finance 20%.

Tasker concluded: "The survey indicates a mixed picture across the country and the wet led sector in the North West, North East; Wales and Scotland are experiencing the greatest impact on trade. It was no surprise to see that respondents to the survey indicate that London, the South East, Home Counties and the South West have reflected a far more positive trading outlook.

"The next 12 months are likely to see the market continue to polarise, with public houses which offer food performing much better than their traditional alcohol-only counterparts.

"As the market continues to improve we could see an acceleration of public houses being offered for sale as the banks and institutions begin to exit properties which are currently being run in administration."

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