Light at the end of the tunnel for pubs?

Neil Morgan, head of pubs at Christie + Co, has seen glimmers of hope that the pub market could be recovering from the double whammy of credit crunch and the smoking ban, as buyers see opportunities offered by lower prices and asking prices are realistic.

It has been pretty dark for the majority of the UK's pub sector over the last 18 months, with the light unfortunately going out completely for some operators. However, while trading is still challenging, there are tentative signs that the sector is starting to show signs of recovery.

Firstly, it is encouraging that a number of operators have recently reported flat or marginally improved like-for-like sales, suggesting perhaps that the impact of the smoking ban has worked its way through the system and that, where operators have adjusted their model to suit changed customer demand, trade has found a level at which it can be sustained through the recession.

In spite of criticism of lease models, around half of recent pub deals agreed by Christie's were for tied leases, showing there's still a demand for these leases as a low-cost point of entry to the sector.

Recently, we have started to see a slow-down in the reduction in values for freeholds, while also witnessing the return of competitive bidding on a number of units either at, around or - in one or two cases - above the asking price. The bid/ask gap seems to be closing, and the expectations of the seller are beginning to be matched by the aspirations of the buyer again, which has rarely been the case over the past 12-18 months.

The major pubcos have reversed their position from being the most active buyers of pubs to being sellers of both bottom-end and better-quality assets. As a result of this change in strategy there are a number of buyers, current and former operators and investors, who are seeing opportunities now that pubs are at much-reduced prices and, if they have access to cash or reliable funding sources, then they are able to pick up some desirable assets.

From now until the end of this year will be a crucial time for the pub sector, but signs suggest it may be a more positive one.