The shortage of freehold public houses on the market has been well reported for some time. This situation was brought about in the main by three factors. One is change
of use, with many pubs being converted to residential properties; then there is the acquisition of freeholds by the pub companies; and finally there is the reluctance of many freehouse owners to sell their major asset.
We have seen the owners of freehouses facing a tough decision. They know that the market value of their properties has risen but, unless they are trading up in the market, they must decide what to do with the proceeds after the potential sale.
The choices for such owners have looked fairly unattractive, with the inflated residential market, the underperforming stock market and low interest on savings. As a result, many freehouse owners have decided to retain ownership, and this has had a number of effects on the licensed property market in our region. First, it has led to substantial price rises for all freehold properties. Second, it has led to increased availability of free-of-tie leases, where owners retain the asset and let the business to a new operator. Third, and much less often reported, is the positive effect it has had on saleability and the prices achieved for good-quality leasehold businesses.
In the Leeds office we have noticed a considerable increase in demand for leasehold pubs. The premiums achieved for such outlets in the past 12 months have exceeded expectations, with one-third of all tied lease disposals achieving premiums in excess of £85,000. Unfortunately, these increases have not yet filtered through to the more downmarket urban operations, which remain in relatively low demand.