12 Dublin licensed premises changed hands in 2012

2012 was another very difficult year for the licensed premises property market following the ‘very challenging’ four years that preceded it with just 12 licensed premises changing hands within the Dublin market.

This reflects 1.55% of the total population of licensed premises within the Dublin market, according to Morrissey’s Auctioneers in its Review of 2012.

This transaction activity in the Dublin market was up 33.6% compared to 2011 although it was still well below the 10-year average of 2.41% or 4.77% at the peak of the market in 2006.

Morrissey’s reports that the capital value of the transactions in Dublin increased by 35.58% from €7.11 million to €9.64 million and the report points out that, “The average sales price in 2012 increased to €0.80 million compared to €0.78 million in 2011 reflecting more freehold transactions compared to the previous year.”

Anecdotal evidence suggests that, generally speaking, average property prices have now declined from their 2007 peak by a minimum of 50% and in many cases considerably higher, depending on the asset class and property type.

The Review points out a decline in the number of leashold interest transactions – leases with a purchase option/a deferred sales contract – which accounted for 8.33% of total transactions in 2012, a reduction of 22% on 2011’s activity.
An analysis of licensed premises transactions for the year breaks them down to: Private Treaty 66.67%; Auction 25%; Post Auction 8.33% and Tender 0.00%.

In tandem with values, capitalising ratios (multiple of turnover) continued to decline reflecting current market conditions, stated the auctioneer.

Adjusted average capitalising rations at the close of the year ranged between 0.5 and 1.5 times net turnover compared to 1.75 to 3.0 times net turnover in 2008/9.
However capitalising ratios in excess of this could be achieved.

Once again establishing ‘sustainable and maintainable turnover’ was hard to gauge.
The reluctance by the banks to lend to potential purchasers has contributed to “further diminished values and in turn activity within the marketplace”.

Morrissey’s added, “The reduction in the volume of trade coupled with current debt on many licensed premises which are geared to different economic circumstances, has resulted in many businesses failing and becoming insolvent, a trend that looks like continuing over the short to medium term”.
The market forces prevailing in Dublin were mirrored generally speaking in the Provincial market.
“However throughout 2012, the Provincial market was harder hit compared to the city and large town locations with continued reports of closures of licensed premises, the bulk of which were mainly located in sparsely populated districts”.

Licence values
The capital value of licences reduced slightly towards the end of 2012 with licences transacting in the order of €65,000 at the close of the year, a long way from the peak prices of €180,000 achieved in 2006.
“Prospective purchasers continued to experience difficulty in identifying suitable licences for extinguishment and transfer purposes due to a large volume of licences not being renewed/held current at the date of requirement for extinguishment and transfer by the purchaser,” states the report.

2013 outlook
The 2012 market conditions are likely to continue throughout 2013, predicts Morrissey’s, “albeit with an increase in activity in the market place as the year progresses. Again the majority of activity in the market will be insolvency cases as a result of business having become insolvent due to a sustained reduction in the volume of trade and/or compounded further by unsustainable debt.
“However we expect a degree of market stabilisation regarding valuation for those businesses that are now enjoying a maintainable trade which can be expected to continue to be a achieved over the short to medium term.”
The report concludes, “Disposals by way of ‘Lease Purchase Agreement’ will also remain a factor of the market provided there is meaningful equity input from prospective purchasers until such a time as more normalised lending is available in the Irish banking system.
“However and importantly there are a number of funded purchasers (both through financial institutions and personal funds) that have entered the market over the past 12 months looking for quality businesses in key trading locations throughout the city which augers well for the marketplace by way of valuation and market confidence”.