On-trade

2014 pub sales ‘exceed all expectations’

The ending of the Capital Gains Tax on December 31st 2014 had a notable effect on the level of pub sales transacted during last year, exceeding all expectations.

More than 38 Dublin pubs sold during the year totalling €44 million with a further 19 in ‘legals’ at year’s end totalling €27.5 million, according to CBRE in its Review of 2014 and Outlook for 2015 for Irish Commercial Real Estate.

“Many of the pubs sold in the first half of 2014 comprised premises that were no longer trading,” notes CBRE’s report, “However, as the year progressed the quality of what was offered for sale improved considerably with many well-known trading assets offered for sale as deleveraging picked up pace.”

Many of the pubs on offer last year were ‘distressed sales’ and this is unlikely to change in 2015 with few consensual sales likely to materialise in this sector for some time yet.

However the biggest change in 2014 from the peak of 2007/8 is that pubs are now being primarily sold to owner-operators who’re focused on the trading asset and the ability to improve the profitability of the underlying business as opposed to being focused on potential ‘alternative use’ values as was the case a number of years ago.

Although it admits that the ending of the CGT waiver could impact on activity in early 2015, CBRE predicts, “With considerable deleveraging still to occur and the underlying economic recovery boosting consumer sentiment and in turn the pub trade, strong volumes of transactional activity are expected to be witnessed in the pub sector again in 2015 despite ending of the CGT waiver last year”.

And as opposed to portfolio transactions the report predicts that most transactions in this sector are likely to comprise individual asset sales.

“We anticipate particularly strong demand for city centre pub properties that are offered for sale with considerably thinner demand for premises in secondary or suburban locations.”

The report points out that a number of multiple operators are likely to expand their portfolios further over 2015 with some of this activity being supported by international funding or other backers rather than being bank funded.

The profile of Dublin publicans is changing rapidly reports CBRE “with pub operators now increasingly younger, more highly-educated and tech-savvy than their predecessors”.

The estate agency also expects to see an increasing focus and emphasis on the food and drink offering in pubs.

Today’s Dublin pub trades for the equivalent of its annual turnover value rather than three times its turnover value some years ago.

CBRE expects to see continued strong demand for good licensed premises over the course of 2015 which offer potential to those outlets where profitability has been severely compromised over recent years.

Demand for pub licences, however, will remain subdued, predicts the report, with licences trading for around €55,000 on average.

 

Hotels

CBRE describes the volume of transactional activity in the hotel sector last year as “phenomenal” with 63 hotels changing hands for a total of €341.2 million and an additional €355 million from ‘legals’ at the year’s end. Several were traded as ‘investment sales’.

And the overall outturn for 2015 may not be dramatically different despite the ending of CGT as the holders of debt continue with their deleveraging strategies.

A continuing trend for 2015 will be to offer hotels for sale in portfolios.

“While many of the hotels that were sold over the last few years were distressed, we are now beginning to see owners of successful hotels making pragmatic decisions to sell and by doing so, take advantage of resurgent pricing in a functioning market, which is changing the dynamic somewhat,” states the report.

Thanks to an improved trading performance reflecting an improving economy, hotel property values have rebounded significantly over the last number of years and CBRE expects this to continue this year.

“Some buyers will focus specifically on loan sales with a view to negotiating deals with the incumbent borrowers while other purchasing entities will focus specifically on acquiring hotel assets.”

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