One Man's Failure Another Man's Success?
10 February 2011For longer than I care to remember, I have been writing this review for the Hospitality Magazine and for 90% of the time I have been able to report on a healthy market with deals being done. Changes within the market and, indeed within the entire European economy, since the end of 2008 have impacted sharply on our own micro economy with property prices declining steadily leaving people unsure as to where and when these will bottom out.
In theory, pub and house values should not follow a similar trajectory as a pub’s value should be determined by its trading history and not reflect general property prices. In reality, pubs have tended to follow general property values in that many of the factors that have affected houses have also influenced pub prices such as the availability of finance, an increase in unemployment levels and over-supply. Additional factors affecting the licensed trade in recent times include the smoking ban introduced in April 2007, increased competition from off-sales and rising overheads, e.g., security, health & safety, insurance to list a few.
Any one of these factors in isolation is unlikely to impact on the market, however, when combined, they have led to a volume of repossessions that I have not experienced in over 30 years in the business. I remember well the recession of the early 1990s, which can only be considered in hindsight as a slight blip in comparison with the current market. Probably the most critical factor at that time was that finance was available despite interest rates climbing to 15%. One memory of that time that gives me hope for the future is that opportunities became available where operators snapped up properties at the right price and turned loss-making businesses into profitable establishments within a short space of time.
Enough, however, of the past days: what has happened in 2010 that will give us hope for 2011? A number of acquisitions occurred during the year. For instance, Eugene McKeever acquired the Adair Arms Hotel and has great plans under way for its renovation. In October, I sold The O’Neill Arms Hotel in Toomebridge at auction for £750,000. At the time, it was closed and all fixtures and fittings had been removed. The hotel is now being refurbished and is due to open before Christmas re-branded as The White River Hotel. During 2010, I also negotiated the sales of The Lighthouse in Ardglass, the Anchor Bar in Newcastle and Kaya in Bangor.
The O'Neill Arms Hotel, Toomebridge
We have also been reasonably active this year regarding the sale of liquor licences although the current market value of licences has fallen from a high of £130,000 to below the £100,000. The main source of sales is to the supermarket operators looking to expand their product range.
Values are difficult to assess currently as open market transactions are few and far between, but one thing is certain; the day of £2.00 in the £1.00 of net turnover are long gone. If you want to sell, make sure your accounts are up to date and that you can show you have a business to sell. I did mention earlier that banks are not overflowing with money and "potential" is not a word that they understand now.
Many people in the licensed trade have asked me if I see any 'green shoots' and will 2011 kick-start a market revival? Unfortunately, I do not see business improving within the next six months especially in view of the forthcoming increase in VAT together with the, as yet, unannounced budget cuts for Northern Ireland, which will certainly not help most people’s financial situation. However, what I do see is a number of opportunities being available where perhaps one man’s failure will be another man’s success. At present, I have received instructions to bring four major pubs, all in administration, to the market in the New Year. There is no doubt that 2011 will be tough, but for those in a position to buy it will be happy hunting days as bargains will exist for those with a sharp eye!