Fleurets Rental Survey suggests ‘return to growth’ for restaurants and pubs

By Luke Nicholls

- Last updated on GMT

Related tags: Renting

Fleurets says restaurants, pubs, bars and nightclubs all have reasons to be optimistic about the next 12 months
Fleurets says restaurants, pubs, bars and nightclubs all have reasons to be optimistic about the next 12 months
An increase in rent reviews among licenced retail premises and a flurry of transaction activity across the restaurant sector could mean that ‘we are at long last beginning to see an upturn in the market, or at least the end of the downturn’.

That’s according to the 28th annual Rental Survey by leisure property firm Fleurets, which found that restaurants in particular are 'bucking the trend' when it comes to rent reviews, with operators continuing to seek new sites and generally paying competitive rents, occasionally re-taking the space of failed high street bars.

The property agents also said it had dealt with a large number of rent reviews over the past 12 months, up 37 per cent on the previous year on licensed retail premises.

“The uncertainties that have dominated both the global and UK economies continue to dominate both the wider property market and more specifically the leisure market,” reads today’s report.

“Recent evidence suggests we did not enter a double-dip recession and there may be a return to growth. However, the general economic outlook still remains unclear. “Whilst there are positive signs of improvement there is still some uncertainty, particularly given the continuing austerity measures. Therefore whilst we anticipate some movement it is likely that any significant levels of growth within the economy remain some years ahead."

Tied pubs

Fleurets said the major pub companies, such as Punch and Enterprise, have been expanding their in-house rent review teams of late, to ensure that the Code of Practice requirements are complied with.

Under the Code’s requirements, rents can go down as well as up and this has resulted in a number of rental determinations below passing rent. “Ultimately it is far better for a landlord to have a tenant in a property paying the correct rent rather than having an over-rented tenant struggling to meet his obligations,” the report adds.

“In addition, there is an increase in tenant support, with increased wholesale discounts being passed on to tenants. We anticipate this continuing for the foreseeable future.”

Free-of-tie leases

As tied leases have generally received poor press in recent years there is an increasing appeal to some tenants who prefer free-of-tie agreements, but the report states that operators on free-of-tie leases are ‘no different from other tenants and are being impacted by the wider economic uncertainties and increasing overhead costs’.

One burgeoning trend highlighted by the report was in free house owners, who are unable to secure the desired price in today’s market by way of outright sale and so are instead leasing pubs free-of-tie.

High street bars

Fleurets has witnessed many reviews being settled at nil increases. “Without exception rent review provisions are upward only and with falling market rents the contracted rent continues to be paid,” it said.

“As a consequence we are seeing a number of pub companies seeking to re-structure leases with their landlords. In many cases this is a last ditch attempt to obtain an affordable rent; otherwise the tenant may enter into a form of pre-pack administration.”

Nightclubs

The property specialists admit that the ‘uncertainty’ within the nightclub sector looks set to continue, with on-going issues such as youth unemployment, high student debt, competition from late night bars and front loading by the core customer age range.

However, Fleurets did suggest that the nightclub sector may have ‘turned a corner from the problems of the last five years’, with an increase in instructions throughout the country. It claims a growth of activity in London and the south is ‘slowly starting to filter out to the regions’.

Conclusion

“We anticipate there being increased activity over the next 12 months,” added the report. “Institutional Landlord’s will be looking for growth given the lack of movement in rents over the past five years.

“In addition, we expect that the Pubcos will continue to work within the new Code of Practice guidelines. This is likely to result in rents throughout the country being agreed at affordable levels.”

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