At 0.64 per cent, transaction activity in this market was down nearly 76 per cent compared to this 10-year average.
“Potential vendors, purchasers and professionals alike found it difficult to gauge ‘maintainable turnover’ and in turn the true market value of trading units,” reports Morrisseys.
The pub property market peaked in 2006 but has since had to adjust to the considerably changed economic climate including “increased operational overheads”.
The significant price differential between the on-trade and the multiples helped diminish the volume of sales in the on-trade too.
“The challenge for the licensed trade throughout 2010 was again to continue to reduce operational overheads and at the same time maintain volume of trade,” stated the auctioneers.
With only five transactions taking place in the Dublin market in 2010, the total capital value decreased from €34.55 million in 2008, to €22.1 million in 2009 to €4.85 million in 2010. Sixty per cent of these were leasehold interests (with a lower value than freehold).
Somewhat distorted by the leasehold interests, the average price achieved for a Dublin licensed premises last year was €970,000 – a reduction of €3.45 million from the €4.42 million average achieved in 2009.
All transactions were by private treaty and restricted to distress sales only.
Compared to 2008’s and 2009’s average capitalising ratios of 1.75 to 3.0 of net turnover, adjusted average ratios at the end of 2010 ranged between 1.5 and 2.5.
“These ratios are applicable to Licensed Houses where the business is already exploited; the property is in good repair and takes into consideration the size and throughput of business/profitability, consistency of trade etc,” reports Morrisseys, “Capitalising ratios in excess of 2.5 times net turnover are achieved for Licensed Houses affording future business growth or alternatively re-development potential”.
Generally speaking, the market forces that prevailed in Dublin were mirrored in the provinces. But throughout 2010 the provincial rural 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.
Principal demand throughout 2010 was again from the off-licence sector of the market.
“The capital value of licenses increased slightly throughout 2010, principally due to a reduced supply of renewed licenses that were available for extinguishment and transfer purposes,” states the report, “Values rose by around €35,000 throughout the year with values in December of 2010 ranging in the order of circa €75,000 to €85,000 — still a long way off their peak €175,000 three years prior.”
Morrisseys predicts, “The market conditions that prevailed in 2010 will continue into 2011 with little incentive for vendors to bring properties to market until such a time as market conditions improve, specifically regarding a resolution to the banking liquidity issue”.
The report concludes, “We expect increased activity in the market place as the year progresses which will reflect current market conditions with reduced prices being achieved in comparison to previous years. The bulk of the activity in the market will be insolvency cases as a result of businesses having become insolvent due to a sustained reduction in the volume of trade compounded further by unsustainable debt.”