Five pubs a day are closing and as many as 7,500 may disappear by 2012, says the British Beer & Pub Association. With many premises boarded up and for sale at knockdown prices, now is a good time to buy a pub for conversion into a spectacular home, flats or live/work space.
© Nigel Howard
Big chains have gradually replaced traditional breweries as the main operators of Britain’s 57,000 pubs. They have been hit hard by beer tax hikes, smoking bans, cheap supermarket booze and the economic downturn, with plummeting beer sales at their lowest since the Thirties, and are making vast disposals.
These companies, often owned by banks, were more interested in pubs as property investments than in pints but with savage cuts in property values they are now hit from both angles. Publican tenants are even volunteering to hand back the keys because they cannot make a living from the business, reports the Campaign for Real Ale.
Fleurets, the pub trade’s leading estate agency, says the value of the average pub freehold in 2008 fell 23 per cent to £537,000. In London, values dropped 13 per cent to £987,000.
Many pubs are being sold freehold with vacant possession, while others have short “fag-end” leases where the freehold can eventually be acquired. Bargain prices mean the bricks-and-mortar value of the building is enough to make purchasing attractive, without having to rely on immediate income from running a business.
“We sold more than 200 freehold pubs last year — from £50,000 to £500,000 — to an amazing range of buyers,” says Gavin Sherman of specialist agent Paramount Investments.
‘Buying a pub is likely to work out cheaper than buying a house in the same street’
Pubs have a flexible A4 planning “use class” that normally can be changed to A1 use (say, for a newsagents), A2 (a delicatessen or a firm of solicitors or architects) or A3 (restaurants). Alternatively, buyers can apply for planning permission to convert the building into a residential property. Often pubs come with land, beer gardens or car parks that can be developed.
“Unless it’s a village pub, where community issues come into play, planners are sympathetic to alternative uses. Pubs close because they are not successful businesses and re-use helps regenerate the area,” adds Sherman.
The cheapest freehold pubs in London cost from about £200,000. In particular, back-street neighbourhood pubs and locals in suburban areas are struggling because of the break up of old communities and other demographic changes. In run-down areas, planners often want to keep a commercial use for the pub because this boosts local employment.
Many Victorian pubs are listed, which can complicate conversion projects. Conservation groups, such as English Heritage and The Victorian Society, are fighting hard to stop demolition or “unsympathetic changes”, arguing that hundreds of gems have already disappeared.
Grade II listing, which many pubs are, only really protects the exterior of the building, not the interior, which probably has been butchered in the past anyway.
Live/workers, especially those in the creative sector, who want to transform the bar area into a studio or office while keeping the accommodation above intact are often looked on favourably by planners.
Buying a pub is likely to work out cheaper on a pounds per sq ft basis than buying a house in the same street. But the refurbishment costs can blow your budget. The realistic minimum fit-out cost is about £100 a sq ft (say, £200,000 for a 2,000sq ft pub) but this could rocket if you have expensive tastes.
Before you buy, especially if the pub is in a conservation area, ask local planners about their attitude to the property.
Pubs often sell at auction, either as vacant freeholds or as “cold investments”. With the latter, the freeholder collects rent from the leasehold tenant, but there is potential for redevelopment or re-use at a later date. Investment “yields” are now typically six per cent plus, double the return of three years ago, according to auction firm Jones Lang LaSalle.
The loss of rural pubs is a campaign hobby horse of Prince Charles. His “Pub is the Hub” initiative helps pubs diversify. Across the country there are now 350 village pubs that are also shops or post offices or internet cafes. Quite often villagers have responded by taking over their own locals.
Most famously, last year film director Guy Ritchie and a group of friends, including Mahiki owners Nick House and Piers Adam, bought the lease of Mayfair’s Punchbowl pub. The freehold of this establishment, deep in hedge fund territory, is now for sale as part of a 1,000 pub sell-off by its owner, the Royal Bank of Scotland.