According to the auctioneer, market conditions in 2011 did very little to instil confidence in the marketplace resulting in ongoing very weak activity in the licensed premises property market. For the fourth year running, less than one per cent of the total Dublin market – just nine licensed premises – changed hands compared to a more normalised 10-year average of around 2.65 per cent.
And while transaction activity here was up 80 per cent on 2010 it was well below the 10-year average of 2.5 per cent of the total population of Dublin licensed premises.
In its report Morrissey’s stresses that 22 per cent of transactions made in 2011 were leasehold interests compared to 60 per cent of the 2010 transactions.
Average price down
All the Dublin 2011 transactions were for under €2 million; although the Dublin licensed premies market witnessed increased activity throughout 2011 the average price of €0.79 million achieved witnessed a significant reduction of 18.56 per cent on the €0.97 million average in 2010.
This average price reduction showed continued market deterioration throughout the year.
No sales by auction or tender
Some 89 per cent of sales were by private treaty with no sales conducted by auction or tender. Only 11 per cent were sold post-auction, according to the report which states that the activity within this licensed premises property market was restricted to distressed sales.
Capitalising ratio reduction
In 2011 capitalising ratios reduced considerably, reflecting these changed market conditions with adjusted average capitalising ratios at the close of the year ranging between 1.0 and 2.0 times net turnover compared to 1.75 to 3.0 times net turnover in 2008 and 2009.
“An estimated 95 per cent of the off-trade is controlled by five multiple retailers,” points out the report, “The sale of alcohol in Ireland is now reported to be 50 per cent through the off-trade – a considerable swing compared to reported figures of 75 per cent on-sales consumption in 2001. “Anecdotal evidence reports to a national average of 33 per cent decline in the volume of on-sales in the licensed trade since 2006. In turn potential vendors, purchasers and professionals alike continued to experience difficulty in gauging ‘sustainable and maintainable turnover’ and in turn the true market value of trading units.”
The “acute lack of liquidity” didn’t help the licensed trade property market either.
Principle demand throughout 2011 for licences was again from the off-licence sector of the market with negligible demand from pubs and hotels.
The capital value of licenses reduced slightly towards the end of 2011 with these transactions in the order of €75,000 at the close of the year, a long way off the peak of €180,000 as witnessed in the third quarter of 2006.
“Prospective purchasers experienced increased difficulty when 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.
“Trade sources indicated that approximately one-third of Ordinary 7-Day On-Licences had yet to be renewed as at November 2011.”
Generally speaking, the market forces prevailing in the Dublin market mirrored those in the provincial market. However throughout 2011 the provincial market was harder hit compared to city and large town locations with continued reports of closures of licensed premises, the bulk of which were mainly located in sparsely-populated districts.
“The challenge for the licensed trade over the past five years has been to reduce operational overheads and at the same time maintain volume of trade and trading standards which has proved difficult for many operators, especially if their business is situated in a non-core trading area.”
The market conditions that prevailed in 2011 will continue into 2012, states the auctioneer.
“The bulk 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 compounded further by unsustainable debt”.
The gloom in the licensed trade doesn’t look like lifting any time soon….