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Opinion > Metro Bank

Resilience of the pub sector

Steve Crosswell, commercial banking director, hospitality and leisure, Metro Bank | 16:57 Wednesday 2nd August 2017

With the result of the EU referendum, an increase in both business rates and rents, along with low consumer confidence, the leisure sector is facing some interesting trading conditions .

While uncertainty is often characterised as being a negative, it presents an opportunity – especially for pub operators – to focus on differentiating their position and providing even higher levels of customer service.

Although leisure sub-sectors – such as the casual dining market – are facing headwinds, the pub market appears to be in robust health, if the number of transactions, investor appetite and general operator confidence are anything to go by.

The large pubcos remain active, with Greene King acquiring Spirit in 2015 and Heineken/Patron absorbing Punch. These larger transactions have created a secondary market, which generates additional activity and an opportunity for smaller, independent operators to acquire and build up their estates. In addition, Stonegate acquired the Walkabout business in December 2016 and three pubs from Faucet Inns in February 2017 as it selectively consolidated.

Geographically, there remains a strong bias towards some areas, with London continuing to appeal to institutional investors, who in some cases are accepting lower yields in lieu of the future capital value upside. We saw the newly formed – and Stellex-backed – Dominion Hospitality acquire the Chapman Group and some of the long-established family brewers have also been targeting 'golden bricks' assets in London, which further fuels price rises.

Looking at the broader market, the industry appears to have shrugged off any concerns about the market rent only option, which so far hasn't had the intended impact on the tied model that some had hoped for.

In terms of sales, according to Fleurets Survey of Pub Prices for 2016, the sales mix has significantly changed, resulting in an improvement in the quality of pubs being sold and an increase in the average sale price. Encouragingly, 62% of pubs sold remained as pubs, a sharp increase compared with the 48-52% seen in the previous eight years. Hopefully we'll see less closures in the months to come.

The market continues to keep everyone on their toes, however, the pub operators that we speak to remain “cautiously confident”, while being aware of the constant need to ensure their products and services evolve and remain relevant to consumers in what can only be described as a volatile environment.

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