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Rental Survey 2012


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For the past 27 years Fleurets has been producing an Annual Rental Survey giving detailed assessment on rental levels based upon new lettings and rent reviews. We have historically concentrated on free of tie leases and shell lettings. Over the past two to three years there has
rent review activity. For this year's report we propose to provide a more general background commentary on a wider variety of market sectors based upon information obtained by Fleurets during the course of the past eighteen months.


Over the past twelve months we have continued to experience considerable uncertainty over the economic conditions following the banking crisis. These problems are worldwide but have also been felt throughout the UK and the wider Eurozone. We have witnessed the Greek crisis and its impact upon other countries within the Eurozone. All this economic uncertainty has led to stagnation in the UK economy, and has resulted in a double dip recession. At the present time there is still no end insight with many commentators believing that the current financial pressures could continue for another five to ten years.

Traditional pubs, either tied or free of tie, are still valued by reference to turnover, profit and the tenant's ability to pay. In many cases turnover has grown over the past 5 years, not least because of above inflation increases in Government duty on alcohol (albeit turnover is always quoted net of VAT, so recent VAT increases will not affect quoted turnovers). However, profits have fallen. The big increases in the costs of alcohol have not always been able to be passed onto the customer and therefore leading to lower gross profit percentages. Operating costs have risen substantially. Wages reflect above inflation increases in the minimum wage over the past 5 years. Even where staff are paid above minimum wages there are pro rata increases. In addition fuel costs have rocketed. The result is that overall costs have often risen by around 5%. Coupled with a 2% - 3% fall in gross profit margins, profits can be down by about 7% of
turnover. If there has been a reduction in profit before rent from say 30% to 23% this is a
reduction of just over 23% of profit. Rents have generally been around 50% of net profit of a unit, so a rent that was previously up to 15% of turnover might now be only 11.5% of turnover.

Clearly for lower profits the rent could now be below 10% of turnover. Good profitable London pubs, which might have fetched 16% - 17% of turnover on a free of tie basis, might now be only around 14% - 15%. Traditional pubs in the North of England, which were attracting rents of
11% - 12% of turnover, may now be only 9% - 10% of turnover. Where turnover, as well as profit, has also declined, this will be reflected in even bigger falls in rental levels.

Tied Pubs

Over the past 2 to 3 years most of the pub companies, who are members of the BBPA, have drawn up Codes of Practice and now offer upward and downward rent reviews and access to the cheaper PIRRS scheme of resolution. This allows tenants to seek rent reductions where there have East Hill, Wandsworth - acted for tenant, a London brewer Kingsbridge Inn, Bourton on the Water - acted for the tenant, a national managed house operator been material changes in circumstances resulting in decline in turnovers and profits. Many leases had RPI increases and as a result rental values were often below the passing rent which may have been agreed 5 years earlier.

We have increasingly seen the pub companies acting in a more conciliatory fashion. Most rents are being agreed and in many cases at reduced levels. Pubcos are trying to keep good tenants either by way of temporary rent abatements or offering increases in wholesale discounts. This will help keep good tenants in situ and incomes will be retained rather than ending up with a vacant property that cannot be re-let even at the abated rent.

Whilst the PIRRS scheme has been introduced as a low cost alternative to the Arbitration and Independent Expert route provided for in most leases, there are still relatively low numbers being referred. This would suggest that there is an appetite from the Pubcos to resolve matters by negotiation.

Free of Tie Pubs

To a certain degree the comments referred to above relating to tied pub company leases are also relevant on the free of tie sector. However, many of the free of tie leases are operated by independent landlords who do not form part of the main trade bodies and thus have not entered into codes of practise. Generally, free of tie leases have had greater appeal in the
market allowing tenants to purchase beer products outside of any tie thus increasing their margins. As a consequence of these greater margins we would normally expect higher rents than for similar properties held on tied leases.


There is a merry-go-round in the restaurant sector. Some of the brand owners are deciding that certain locations or size of unit are no longer suitable to their image. Often the decision is made when the unit is in need of a "refresh", often at the cost of £200,000 to £300,000. Instead of undertaking this refurbishment they decide to dispose of the unit. In most cases the people taking such units are new expanding operators who lack the covenant strength required by landlords who are often not keen to see assignments. Deals often have to be structured as sub-leases. The restaurant companies sometimes prefer this as it enables them to keep control of the new companies when they fail to pay their rents etc., rather than have a unit, which they have assigned, bounce back to them under privity of contract. We have also witnessed assignees agreeing unsustainable rents without taking the necessary professional advice. These have failed and reverted back to the original tenant at inflated rents. In today's market they have to be sub-let in many cases at less than the passing rent. This can be increasingly difficult where leases prevent the sub-letting at anything other than the passing rent or above. Dealing with toxic leases (in all sectors) has become quite a science. Fleurets has successfully negotiated deals on a number of units where there has been particularly difficult lease restrictions, resulting in a successful outcome for our clients.


Virtually all nightclub operators have experienced difficulties over recent years with many going bankrupt and entering into administration. Many have been re-incarnated in different forms; some on a number of occasions.

The nightclub sector has probably encountered the toughest trading conditions of all sectors. We have previously commented on the main problems including increasing unemployment within core 18 - 25 customer base, increased student debt, competition from bars with late licences, front loading and the potential imposition of the Late Night Levy and Early Morning Exclusion Orders. Nightclubs no longer have the monopoly on the late night market. To achieve any decent level of trade, operators have to invest heavily in what is becoming tired property stock. Whilst nightclubs have generally been valued by reference to floor area it is ultimately the operator's ability to pay that will determine the level of rent. With these
increased pressures the general trend can only be downwards.

What is required has changed dramatically over the years. The mega 4 or 5 roomed clubs with a late night bar with street façade and a smoking solution has been increasingly popular. Late night bar operators are looking for units that have surplus accommodation upstairs or downstairs or at the back that can be converted to clubs and allow trading on until the early mornings as the bar gradually morphs into a nightclub. Perhaps a prime example of this is Novus Leisure's Tiger Tiger units. Where buildings are in poor order (often former cinemas) and with inflexible structures they may simply be unable to let at any amount of rent.

Understanding what is required (and what is not) is paramount. Pure nightclubs will generally pay a rent of £7 - £12 per sq ft. Late night bar operators may have to pay the going rate for the main street facing bar (often £15 - £20 per sq ft or more) but can trade surplus space that others do not want for £5 - £10 per sq ft. It is for the valuer to ensure that evidence is analysed correctly to ensure that these split uses are correctly valued and not distort the true picture.

High Street Bars

This sector emerged in the late 1990's and developed in the early part of the 21st Century, with operators seeking presence on the High Street and being able to afford space due to declining retail rents and were thus able to outbid alternative uses. Many of these High Street bar operators became well known names and included operations such as J D Wetherspoons, Pitcher & Piano, Slug & Lettuce, Yates's etc. During the initial boom period many units were taken and not all in prime position.

Many operators have had financial difficulties in part due to too high rents being paid for poorly located units. We have seen over recent times a general consolidation of the High Street sector with operators such as Stonegate evolving and acquiring bars from M & B. We anticipate that this consolidation is likely to continue into the foreseeable future.

We are also witnessing a number of secondary sites now closing and in some cases reverting back to retail use. Again, in general terms the High Street market has been somewhat depressed with limited rent review activity. It is only prime locations where there has been particular demand or perceived growth that landlords have actioned rent reviews. Many are
being settled at nil increases.

In addition, we have seen units that have been occupied by companies that have gone into receivership being taken over by other operators at rents well below the passing rent and in many cases now based on fully fitted units rather than on the same basis as the original shell letting.

A number of companies, particularly Wetherspoons, have been restructuring their leases, whereby they have entered into a new lease with fixed increases and doing away with the more traditional 5 year rent review patterns.

In addition, where tenants no longer wish to operate and try to dispose of their leases has been the difficulty of achieving an assignment due to excessive rents. We are therefore witnessing units being sub-let and in many cases below the passing rent, with the original lessee having to subsidise the rent for the foreseeable future.

Bars in London

The one area that has remained positive is the South East, particularly within the M25 where London is considered to be a different market. This may be a local factor with events such as the Jubilee, the Olympics and the Paralympics, all focusing attention on the region.

City rents have not generally increased because there is evidence of big units being let at rents, which incorporated substantial incentives. There are some exceptions to this rule. The West End however continues to boom. There has been some good uplifts in smaller (4,000 to 6,000 sq ft) units, which could also be used for A3 purposes. Growth in larger pure bars has
continued to be slow. Most units in London however will be re-let at rents not substantially different to figures that pertained 5 years ago.

Many High Street bars are 6,000 sq ft - 12,000 sq ft. They are too large to be taken by restaurant groups. In any event the restaurateurs do not wish to be in rowdy wet led areas of town, even if the buildings can sensibly be broken down into 3 or 4 units. Coupled with the problems in general retail, it is difficult to see what may become of these units and what
their use will be in the future.

Regional Review

Throughout the country the number of reviews being actioned has varied. Not surprisingly London has seen the greatest review activity. Throughout all sectors there have been rental increases, although in many cases these have been at nominal levels in order to avoid third
party referrals.

We have seen landlords becoming increasingly restless as there has been limited, if no growth over the past 10 years. Overall the only areas where we are seeing rents being reduced by negotiation is within the tied lease sector, where tenants have the benefits of the Codes of Practice.

Other rents are falling, more by clever restructuring and administrations, rather than through negotiation. In the wider property sector rent reviews are, for the most part, upward only, which can have a distorting effect upon the understanding of what is the market rent. Therefore whilst rents cannot go down there are many cases where the market rent is well below the
contracted rent that has to continue being paid.

Regional highlights for rent reviews undertaken by Fleurets are shown below:


  • Highest number of reviews
  • 35% no change
  • 11% with rent reduction
  • Average reduction 17%
  • 54% with rent increase
  • 26% had increases of less than 10%
  • 27% had increase of more than 20%

South and West

  • 19% with rent reduction
  • Average reduction 28.6%
  • 50% no change
  • 31% with increase
  • Average increase 21%


  • 27% of rents with no increase
  • 18% with rent reduction
  • Average reduction 36%
  • 36% with rent increase
  • Average increase 16.5%


  • 50% of rents with an increase
  • 50% with no change
  • Average increase 17%


We expect rent review activity to be relatively subdued for the immediate future. However, landlords who have bought investments will not wish to see rents continuing to remain static and may start forcing rent reviews, which could result in some further increases. How rental levels move over the longer term will be very much dependent upon the general economic

Where rents on fitted out pubs (be it on a free of tie or tied basis), continue to be valued having regard to trading potential, market rents should continue to be maintained at sustainable levels, particularly where there is an opportunity to reduce the rent should circumstances dictate. In fact if all sectors considered a profits approach to valuations there is more likelihood of affordable rents being charged throughout all sectors. Whilst rent reductions may not be favoured by landlords it is surely far better to have a tenant in occupation who can continue to trade and afford to invest in the fabric of the building rather than failing and leaving a vacant property.

As with any survey it is the understanding of the core data and the understanding of the individual circumstances surrounding any deal that is paramount. It is therefore essential that landlords and tenants alike should obtain sound professional advice. Fleurets are able to provide this advice having a team of experienced Chartered Surveyors who have specialised
in rent reviews on licensed and leisure property for many years.

Click here to open the pdf directly.