Wednesday 22 November 2017

Sale of 35 Dublin pubs in 2016 delivers total of €62m

McDonagh’s pub in Dalkey was one of a number of Dublin pubs which sold within the €1m-€2m price range in 2016
McDonagh’s pub in Dalkey was one of a number of Dublin pubs which sold within the €1m-€2m price range in 2016

Donal Buckley

As many as 35 licensed premises worth a combined €62.17m changed hands in the Dublin market in 2016. These are among the findings in the latest annual review of the Irish pubs market by Morrisseys, the estate agents who specialise in the pub and licensed trade.

"We expect the improved market sentiment of 2016 to continue into 2017 with an increase in overall activity," says managing director Tony Morrissey.

While last year returned the strongest growth in values since the height of the market in 2006, the number of sales declined from 39 in 2015 - the second annual decline in a row. Nevertheless, 2016 activity was more in line with normal levels when about 5pc of stock changes hands annually.

In all, the capital value of the Dublin market increased by 43pc in 2016. This suggests the average price of a pub deal increased by 60pc from €1.11m in 2015 to €1.78m. in 2016. However, this average is skewed by three pub/entertainment venues that sold way above this level.

Morrisseys categorise sales in €2m brackets, and the Camden Deluxe entertainment venue on Camden St sold in the €8m-€10m bracket. The Pod nightclub on Harcourt St sold in the €4m-€6m bracket and six pubs sold in the €2m-€4m bracket, including Houricans Leeson St; Devitt's, Camden St; The Harbour Master in the IFSC; Merchants Arch facing the Ha'penny Bridge; Howl at the Moon, Mount St; and Addison Lodge in Glasnevin, which came on a site offering good development potential.

As many as 27 pubs sold for prices in the €250,000-€2m range. They included Scruffy Murphy's off Mount St, MacTurcaills on Tara St, and McDonagh's in Dalkey, which sold for between €1m and €2m.

The newer pub-owning groups were again active in 2016. Press Up Entertainment, headed by Paddy McKillen Jnr and Matt Ryan, is now one of Ireland's largest hospitality groups and added one Dublin bar, Howl at the Moon, to bring their portfolio to 11 bars and clubs in Dublin and Cork plus two hotels.

The group announced plans for a 41-bedroom boutique hotel together with public bar in Ranelagh; a 60-bed hotel with ground floor and rooftop bar in the Docklands; and plans to refurbish the Stella Cinema in Rathmines into a luxury cinema and bar offering.

Alan Clancy added a Limerick unit, Sin Bin, to bring his total to seven, all of which are located in Dublin, Limerick and Wicklow.

The Chris Kelly group added two Dublin units - The Black Lion and The Gate - to their portfolio to bring their total to eight Dublin units. In addition, the group operates a number of Dublin licensed premises under management contracts.

Galway Bay Brewing Company added an additional two Dublin units - The Beer Traders and The Gasworks - to bring its portfolio to 11 units in Dublin and Galway.

Bodytonic group added one Dublin unit, The Back Page, and one Clare unit, Healy's (known as Nan Ahern's), to bring their total to seven.

Mr Morrissey also foresees a change in the type of vendor in the coming year. He says: "For the past eight years, activity in the marketplace has been predominantly driven by distressed sales due to a reduction of trade coupled with unsustainable debt. However, improving market conditions within the past 24 to 36 months and a realignment of both trade and capital values to more normalised levels has resulted in owners of business that have been contemplating retiring from the licensed trade over recent years beginning to bring their properties to market with successful outcomes."

He instances sales such as Kennedy's in Drumcondra, Devitt's on Camden Street and The Star Bar in Swords, all of which were retirement-driven.

"Consequently we anticipate sales of retirement-led, well-located licensed premises, to rise over the next 12 to 24 month period. This rise will be modest at first but should gather momentum as high-value transactions increase, underpinning market confidence."

The prices achieved in 2016 reflected multiples of the pubs' turnover, or in other words the capitalising ratios and these continued to consolidate and increased in certain sectors of the market.

Adjusted average capitalising ratios (multiples of turnover) in respect of net wet on-sales at the close of the year were ranging between 0.5 and 2.5 times net turnover.

These ratios were influenced by many varying factors such as location, make-up of trade, volume of business, profitability, competition and demand for the particular asset. The ratios are applicable to licensed houses where the business is already exploited, the property is in good repair and condition and takes into consideration the size, throughput and type of business enjoyed, profitability, consistency of trade, target market etc.

On the other hand, higher cap ratios can be achieved for pubs with growth potential, or those with strong volumes and economies of scale and which generate substantial profits. In contrast, pubs sell for lower cap ratios when their profits are poor.

"Historically, off-market transactions accounted for the majority of activity within the licensed property market and we expect 2017 to see the beginning of a return to these levels due to the shortage of well-located properties offered to the market coupled with the rising number of purchasers entering the market; the latter due to improved access to loan finance and completion of settlements on legacy debt," Mr Morrissey says.

Auction sales represented only 11.43pc of Dublin sales in 2016 and the type of pubs sold by auction were generally in a lower price range from €400,000 to €493,000 in 2016 up from €315,000 to €395,000 in 2015.

For example, The Bridge House in Crumlin was sold at auction in 2015 for €320,000 and there was only one bidder and The Kings Inn on Bolton Street sold at auction in September 2016 for €400,000.

However, not all auctions are for low-priced premises. Recent substantial auction outcomes were seen with Sheary's Crumlin and The Traders, Walkinstown, which returned €900,000 and €1,000,000 respectively at auction in 2015 as both represented viable trading models.

"We see the value class and calibre of property being offered for sale by auction increasing. This, in turn, will engage vendors to reconsider auction as being the best method of sale in order to realise the best price for their asset.

"Auctions will present opportunities for vendors to drive value as a result of increased appetite and activity within the market for well-located assets. This demand will be generated from increasing levels of funded purchasers," he says.

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