The 39 Dublin licensed premises that changed hands in 2015 reflected 5.3% of the total pub population in the capital which compares with a 6.3% figure in 2014. However this level of activity was more in line with “normalised” activity of around 4% compared to the lows experienced in the five years to 2012 of under 1%.
Morrisseys’ Licensed Premises Review 2015 & Outlook 2016 values the 2015 market at €43.3 million compared to 2014’s €52.46 million figure. This puts the average sale price of a unit in Dublin at €1.11 million which compares to €1.14 million the previous year.
“For the past eight years activity in the marketplace has been predominantly distress sales due to a reduction of trade and unsustainable debt,” the Review points out, “However resulting in improved market conditions and an increase in values to a more normalised level, owners of business that have been contemplating retiring from the licensed trade over recent years have begun to bring their properties to market with successful outcomes. This trend we expect to continue over the short to medium term.”
The preferred method of sale in Dublin was by private treaty for the 11th year in a row. This accounted for nearly 80% of the market (or 87% when factoring in post-auction private treaty sales of 7.69%).
Morrisseys expects that private treaty sales will remain the preferred method of sale over the short to medium term until market conditions strengthen further.
Sales by auction accounted for 10.26% while those by tender accounted for just 2.56%.
“There were no auction sales from 2007 through to 2011 on account of market conditions which reflected an acute shortage of liquidity and market confidence during this period,” reports Morrisseys.
“However over the past five-year period, auction as a method of sale has been employed by banks and insolvency practitioners for predominantly distressed fire sales at the lower end of the value range in the market place.
“As more normalised market conditions return and owners of top tier properties contemplate selling, we expect auction as a method of sale to be considered where demand is expected to be high from well-funded purchasers.”
There are currently an estimated 7,315 licensed premises in Ireland together with around 1, 000 hotels, states Morrisseys, adding, “Since 2007 there has been a 11% decline in the number of licensed premises nationally and this trend looks set to continue in the future over the short to medium term as there is not enough demand to sustain the current population.
“In Dublin it is estimated that the population of licensed premises has declined by approximately 5.8% with the estimated current population of Dublin licensed premises now standing at 730.”
Capitalising Ratios continued to consolidate and increased in certain sectors of the market.
According to the review, “Adjusted average Capitalising Ratios (Multiples of Turnover) in respect of net wet on-sales at the close of the year were ranging between 0.5 and 1.5 times net turnover.
“These ratios are applicable to licensed houses where the business is already exploited; the property is in good repair and condition, takes into consideration the size, throughput and type of business enjoyed, profitability, consistency of trade, target market etc.
“Cap Ratios in excess of the above are achieved for licensed premises affording future business growth or alternatively businesses that enjoy a considerable volume of trade with ultimate economies of scale and a substantial bottom line profit ie top tier of the licensed premises property market.
“Cap ratios below the above reflect licensed premises that enjoy poor economies of scale regarding the volume of trade enjoyed and in turn profit generated.”
The report also makes the observation that, “The considerable increased activity in the marketplace over the past two years has seen a number of businesses that have changed hands being repositioned by their new owners and catering for changed demands in the market place compared to those of a decade ago”.
The provincial market in 2015
The market forces that prevailed in the Dublin market were mirrored generally speaking in the provincial market.
Pub sales in the provinces reflected the Dublin market in that for the second year running a consolidation of trade in the principle population centres and a recovery in values took place. This was driven by cities and large towns (including tourist destinations) enjoying good economies of scale and sustained employment.
“In contrast the Provincial Rural Market continues to struggle with continued reports of closures of licensed premises, the bulk of which were mainly located within sparsely-populated districts with an oversupply of competing licensed premises,” notes the report.
The Licence Market
Principle demand for licences throughout 2015 was again from the off-trade sector which has also been the stimulus for activity for the last decade now with negligible demand from either new pubs or hotels, reported Morrisseys which added that the capital value of licences remained relatively stable – of the order of €50,000 to €55,000 throughout the year, a long way off the peak prices achieved (in the order of €180,000 as of 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 a purchaser,” states the review, warning that anticipated demand for further licences will continue to be from this sector and that the auctioneer expects continued downward pressure on the future value of licences over the short to medium term.
Morrisseys expects the improved licensed trade market sentiment of 2015 to continue in 2016 with a similar number of transactions being completed, if not surpassed.
“This increased market activity will continue to stabilise the market sector, promote confidence within both the property and banking of this market sector.
“We expect an increase in the number of funded purchasers entering the market which will in turn underpin the market further,” it concludes.