Saturday 18 August 2018

Demand for Dublin pubs goes up as economy grows

McCloskeys in Donnybrook
McCloskeys in Donnybrook
The Vineyard in Blanchardstown
The former Nash’s in Dublin city centre

Donal Buckley

The number of licensed premises which sold in 2017 fell to 31 in Dublin, compared to 35 in 2016, despite increased demand, according to the latest market analysis from specialist estate agent Morrissey's.

The value of those sales fell even more sharply from €67.17m in 2016 to €36.6m in 2017, reflecting how 28 of the 2017 pubs sold for less than €2m, with the others selling for between €2m and €4m.

In contrast, the higher 2016 value was inflated partly by three pubs which sold for more than €4m, including the Camden de Luxe on Camden Street, which sold for over €8m.

The report says that 2017 prices averaged €1.18m, which was more in line with the 2015 market, when the average sale price was €1.1m. Company director Tony Morrissey says that demand has increased, particularly for well-located Dublin city centre units and for those in good suburban locations.

He attributes this rise mainly to increased availability of finance from the pillar banks as well as the growth in the economy - disposable incomes have resulted in a recovery in sales in pubs. In addition, a number of publicans have entered the market following the conclusion of settlement agreements on their debt.

While he expects purchaser demand to continue throughout 2018, nevertheless he believes that "supply will continue to be an issue with many operators nominating to defer sale or retirement due to the uplift in turnover, profit and capital value experienced off the back of a stronger economy with improved consumer discretionary spend". He also expects fewer sales arising from insolvency or impaired loans.

The recent fall in tourism inflow from the UK has had a visible impact on trade within tourist districts and border counties and is illustrative of the potential impact that Brexit may have.

The only prime Dublin city sale to conclude in 2017 was Sweeney's Bar & Le Cirk on Dame Street which was bought by Colm Wu for around €3.55m. Other notable city centre sales included the former Nash's which included commercial and residential space overhead. Located near St Patrick's Cathedral, it sold at auction to Sean Foley for €1.55m. Stephen Rooney bought JJ Smyth's on Aungier Street for about €1.4m.

In the suburbs Alan Murtagh bought Sandyford House, Dublin 18, for around €1.7m. The Molloy pub chain bought The Vineyard, Blanchardstown for about €1.25m and Niall Flynn acquired Kilmardinny Inn, Santry for about €1.35m.

While developers are understood to have bought Bolands in Stillorgan and McCloskeys in Donnybrook, it is believed that only two pubs were bought for redevelopment: the Cuckoo's Nest in Tallaght and The Blackhorse Inn, Inchicore.

Among the off-market deals during the year at prices ranging between €825,000 and around €1m were: Molloy's Talbot Street, Bushe's, Phibsboro and The Steering Wheel, Clondalkin.

Pub groups on the expansion trail included Alan Clancy's group, which added four premises: 9 Below, in the basement of the Hibernian Club on Stephen's Green; Oyster Tavern in Cork City; Brogan's Bar in Kilkenny in partnership with Dublin footballer Bernard Brogan Jnr; and House Belfast.

Danu partners sold their shares in Mercantile Group to JT Mangan (Capital Bars) LLC, who now solely own the Mercantile Group, which consists of Whelan's, Wexford St; The George on South Great George's St; Pichet, Trinity Street; Opium, Wexford Street; Mercantile Hotel, Dame Street; Café en Seine, Dawson Street and NoLita (formerly Soder+Ko) on South Great George's Street.

The group is undertaking refurbishment programmes which include The George, Café en Seine, Opium and Whelan's and a €16m extension to the Mercantile Hotel. There were two Dublin investment sales in 2017: Bakers on Thomas Street and Conway's in Blackrock Village, returning net equivalent yields of 9.6pc and 8.31pc respectively. In Delgany, Co Wicklow, The Horse & Hound sold for about €1.45m.

Increased demand for pubs is also one of the factors which has helped to consolidate increased valuations in certain sectors of the market, as reflected in multiples of either net turnover or price earnings ratios.

The report says: "Adjusted average capitalising ratios in respect of net wet on-sales at the close of the year were ranging between 0.5 times and 2.5 times net turnover whilst price earnings ratios applicable to sustainable EBITDA were ranging between five and nine times.

"These ratios were influenced by many varying factors such as, but not limited to: location, make-up of trade, volume of business, margins, profitability, competition and demand for the particular asset."

Rory Browne, senior negotiator, says: "Improving market conditions over the past three years and a realignment of both trade and capital values to more normalised levels has resulted in owners deciding to avail of the opportunities to retire. But sales also included a large volume of distressed and insolvency associated transactions."

Outside of the Dublin market, sales activity was predominantly characterised by low-value units in small towns or peripheral rural locations.

However, areas in provincial cities, large towns and tourist destinations which enjoy good economies of scale and sustained employment were also targeted by buyers. The Limerick market, which had seen numerous pub closures over the last number of years, is now beginning to turn a corner.

A renewed confidence in the market was highlighted by a number of licensed premises that had ceased trade being sold for pub use, together with numerous extensions and refurbishments. James Lennon, Tony Enright and Pharmacia's Mike Warner bought 101 O'Connell Street and they have ambitious plans for a large licensed complex comprising five bars, two of which are already open and trading. Daffy's Bar on Catherine Street re-opened as The Commercial and well-known Limerick publicans, the Flannery Family, purchased Bourke's pub on Catherine Street, which had been closed since 2014. Flannerys are also extending their main unit, the renowned Jerry Flannery's bar on Catherine Street into an adjoining building.

Neither Cork nor Galway saw sales during 2017 but demand for Galway pubs premises has increased "with little supply of quality assets to match appetite." In contrast, the rural market continues to struggle especially in sparsely populated districts with an oversupply of competing pubs.

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