UK Pubs Prime Yields Improving in London and the Regions

Prime yields are improving in the UK regions as well as London for good quality investments according to the latest UK Pubs MarketView from CBRE.

Prime London and prime regional yields are at 52 week lows of 4.75% and 6.50% respectively. In fact yields on prime London pubs are the lowest they have been in the last seven years.

Managed pubs and restaurants in the UK have registered a full twelve months of positive like for like sales1 with all the major managed pub companies in recent months reporting strong performance. Capital investment made by many companies last year and the underlying growth in the market of around 2%, (bolstered by last summer’s good weather) are having a beneficial effect.

Another sign of an improving market in this sector is the explicit intent of many managed pub companies to increase their number of managed units. Marston’s, Greene King and M&B have active new build programmes and JD Wetherspoon and Fullers continue to convert buildings to pub use. Virtually all the managed pub groups have picked up individual units as they come on the market and most recently, Spirit has explicitly stated it expects to look to expand its estate more significantly.

Sales of tenanted pubs continued as operators focused their attention on driving returns from their core sites. This “continued reduction in the tail” has resulted in improved trading performance for a number of operators. Recent examples include; Enterprise reporting like for like growth in net income of 1% in the first 18 weeks to 1 February 2104 and Punch with like for like growth of 1.5% in net income during the first 28 weeks to 1 March 2104. These figures are especially significant given that both operators were reporting declining income only two years ago.

New finance sources are also entering the pub market in a bid to find high yielding investments. Cerberus’s acquisition of Admiral paved the way in early 2013 and more recently Trust Inns announced a new financing package of £130 million with Macquarie Bank.

Siân Tunney, Head of Pubs at CBRE commented:

“The sector, in general, continues to improve; but the most interesting development of late has to be the emergence of new investors to the sector seeking real estate backed opportunities. We are seeing some of the smaller fund managers and private equity houses now making their first foray in to the pub market, resulting in an enhanced investor pool and thus improving the prospects for the pub market in general.”