The licensed trade property market has continued to gradually improve in Scotland since the effects of the economic recession from 2008 to 2013.
This general improvement in the market, however, does not apply equally across all parts of the licensed property sector and depends on the type of operation, size and location of each particular property.
In general, prices achieved for licensed premises in 2016 are still well below the heady levels generated in the peak of the boom period (2003 to 2007). However, it is highly unlikely that prices will return to these heights and in my opinion, we have now returned to a more realistic and sustainable price level for licensed premises in Scotland.
In 2016, we continued to see demand increase for large, good quality city centre and larger town centre pubs, both from national operators and traditional free trade buyers. The other main growth area was the family food pub/ restaurant sector with operators such as Whitbread, Greene King and M&B acquiring sites for their various brands. Marstons, a fairly new entrant into Scotland, was also very active in acquiring sites for new-build family food pub/ restaurants. The family food concepts being developed, mainly by the national companies, are very much food led and depend more on high visibility main road locations with large car parking areas.
Many of the new outlets being developed and operated by free trade operators in 2016 have almost exclusively been contemporary in design and fit out, with an emphasis on the sale of premium and craft products, as well as food, to drive higher gross profit margins. These sites tend therefore to be located in areas with high demographics in order to maximise pricing and margin potential.
Good quality demographics and locations are considered to be important for all types of licensed operations and the availability of some kind of food offer is also considered crucial for all types of public house operations.
Conversely, the traditional wet-led pub sector continues to be in general decline, particularly those where there is no possibility of providing a food offer. Local housing estate pubs have also been in decline as peoples’ drinking habits have changed and supermarkets continue to provide cut price competition. We have tended to see pubs in these two categories being sold off, particularly by pub companies, with many being acquired for various alternative uses.
In Aberdeen, many pubs, hotels and restaurants suffered a decline in trade and demand in 2016, as a result of the local recession due to the well-known problems affecting the oil industry. Prior to the recession, hotel room supply had already been catching up with demand, due to new developments, therefore the recession delivered something of a double hit to the Aberdeen hotel market. We witnessed a number of casualties in Aberdeen in 2016, however this appears to have now largely stabilised. It will take some time and an improvement in the oil industry, before we see any significant recovery in trading levels and prices are unlikely to return to previous levels, at least in the short to medium term.
Looking forward to 2017, it is difficult to accurately forecast how the market is going to perform, given the current uncertainly caused by Brexit and the possibility of a second independence referendum in Scotland. In addition, in the pub sector, the long term effects of the reduction in the drink/driving limit have still to be fully determined, although it appears to have certainly affected some pubs, particularly midweek tea time trade and late night Sunday trade.
A positive outcome for the Scottish Government's proposed minimum pricing policy could conceivably be a good thing to the on trade sector, but this is still in abeyance following the continuing appeal against that proposed legislation.
Another positive aspect is that banks, in general, appear to be more active in lending within the sector, albeit they are likely to be tight in terms of lending on a loan to value basis.
In the light of the current uncertainty, it is difficult to envisage an increase in demand or achievable prices within the Scottish licensed trade property market in 2017 and at best we will see demand and values remaining at around current levels.
For advice on the licensed trade contact: Andrew Macpherson, Consultant (firstname.lastname@example.org / 07785 951 090