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Pub sales volumes and M&A market activity up in 2021

Updated: Jan 31, 2022


Specialist business property adviser, Christie & Co, has today launched its annual Business Outlook report, ‘Business Outlook 2022: Adjust, Adapt, Advance’, which reflects on the themes, activity and challenges of 2021 and forecasts what 2022 might bring across the industries in which Christie & Co operate, including the pub sector.


Following the business disruption and challenges caused by COVID over the last two years, it was encouraging to see the UK pub sector get back up and running in 2021. The number of businesses that reported a strong return to trading once all operating restrictions were lifted on 19 July for England and 9 August for Scotland, demonstrated the significance that British people place on visiting the pub, underpinned by the successful vaccination programme and ongoing stimulus of government support.

The report reveals that the transactional market remained buoyant in 2021 and Christie & Co’s pub sales volumes were up 103% on the previous year. Despite the unpredictability caused by the emergence of new COVID variants throughout the year, 47% of these properties were sold to private buyers and 87% were purchased for continued use as a pub, indicating there remains an appetite for purchasers to buy and operate pubs. Freehold assets with letting rooms in popular rural and coastal tourist locations remained most attractive, driven by the staycation boom.

The report notes that the M&A market began to heat up in 2021 and Christie & Co was involved in several of the reported tenanted or managed portfolio transactions. This included the first portfolio transaction of the year; the sale of a majority stake in ten Red Mist Leisure public houses to Red Lion Holdings.

Throughout 2021, the large pool of buyers seeking quality pubs outstripped the level of supply, as many operators have managed to weather the worst of the COVID storm due to government support. The imbalance in the demand and supply equilibrium has offset any potential negative impact of trading and cost issues and created an upwards movement in Christie & Co’s pub price index for 2021, with average prices increasing 3.3% on the previous year.

Looking to the year ahead, the report also outlines Christie & Co’s market predictions which are:

  • Race to “premiumisation” and operational efficiencies to help drive margins and offset operational headwinds and inflation

  • Benefits of “localisation” and working from home set to continue for regional towns and cities

  • Increase in supply as operators re-evaluate their estate post-COVID, taking into account CAPEX and other increasing cost pressures. Operators who fail to invest will fall behind

  • Continuing competition between the fast-growing PE backed companies as well as multiple operators and regional pub co/brewers eager to fulfil their expansion plans will lead to a greater diversity of buyers and sellers this year

Stephen Owens, Managing Director of Pubs & Restaurants at Christie & Co comments, “During 2021 we saw demand exceeding supply for the right kind of assets and this resulted in positive price movements, notwithstanding the operational and financial challenges that Covid brought. As we move into 2022 and with hopefully the worst of the pandemic behind us, we can expect a more normal trading environment with an increasing number of buyers and sellers returning to the market.”


In the hotel sector, whilst the beginning of 2021 was a challenging period for hoteliers, with the UK entering its third and longest national lockdown, the lifting of travel restrictions from May onwards saw the hotel sector regain momentum, albeit with stark differences across various regions and markets. In parallel with this, the hotel property market experienced a resurgence of transactional volumes in 2021, indicating more active deal flows and increased investor confidence in the sector recovery curve.

Key market trends for 2021, as highlighted in the report include various economic and operational headwinds, a delay to the predicted wave of distress, development challenges, a stark contrast in performance between leisure destinations capitalising on the staycation boom and corporate hotel markets and a lack of opportunities coming to the market, particularly those of scale. This significant imbalance between buyers and opportunities often drove price competition and there was minimum impact on pricing as a result.


This was evidenced in Christie & Co’s hotel price index for 2021, which saw an overall, albeit moderate recovery in hotel values versus the 2020 drop, with average prices increasing 4.3% on the previous year.


Key statistics included in the report confirm that Christie & Co remains the market leader in hotel deal volume, selling over 110 hotels across the UK in 2021. This 50% increase in deal volume versus 2020 and the 30% uplift in the number of offers received clearly illustrate the buyer appetite that currently exists for hotel assets and suggest investors remain forward-looking.


Looking to the year ahead, the report also outlines Christie & Co’s market predictions which are:

DEMAND

  • Assuming the surge in cases and social distancing measures introduced as a result of the Omicron variant are short-lived, demand for business travel and international visitation will likely pick up. This may lead to a potential correction in domestic leisure demand and ADRs vs 2021 levels before normality returns

MARKET PERFORMANCE

  • In light of the Omicron threat, it is likely that any recovery in occupancy, notably in corporate destination, may be further delayed into the second half of 2022. Hoteliers will try to keep ADRs high to absorb some of the cost pressures

  • Operating margins will continue to be impacted by significant economic pressures, staffing shortages and payroll increases

  • Transactional volumes are likely to increase in 2022 but we are unlikely to see a massive wave of distress activity. We may start to see some larger scale opportunities and the appetite for leisure-led assets and leaner business models will continue

SUSTAINABILITY & DEVELOPMENT

  • Sustainable buildings, renewable energy and carbon offset schemes will be highly sought-after and will be positively reflected in yields

  • The development pipeline is likely to slow down due to rising construction costs and limited financing appetite

Carine Bonnejean, Managing Director of Hotels at Christie & Co comments, “The rise of Omicron towards the back end of 2021 certainly impaired trading over the Christmas period and depleted cash reserves from operators, creating some significant additional stress, particularly as we enter the low season in the first quarter. However, on a more positive note, this is likely to create another strong year of staycations for UK hotels. Nevertheless, buyers are still as interested as ever by the sector and frustrated by the lack of opportunities at all levels. As shown by our price index, competition is positively impacting sales proceeds and we are unlikely to see a substantial change to this dynamic until the end of Q1 2022 at the earliest.”

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