2016 to date has largely been positive for the Scottish pub market, with Christie & Co witnessing the growing appetite for licensed trade premises across the nation despite some challenges.
Scotland is a unique area. With the exception of a few large cities and towns, it is largely rural, and you can’t compare the pub trade in Glasgow or Edinburgh to that in Drumnadrochit or Dunphail. It has its own legislation and legislative processes that differ from the rest of the UK, and as a result, the market should be viewed differently.
The reduction in the drink driving alcohol limit (introduced in 2014) has had a dramatic effect on pubs across Scotland, with sites reporting a drop in income of between 10 and 60%. The “after work pint” appears to be a thing of the past and operators are reporting their businesses becoming quieter much earlier in the evenings.
Rural sites are experiencing more turbulent times due to the change in the drink driving limits, resulting in more potential consumers choosing to stay closer to home rather than travel out to these locations. An excellent reputation for food and service is required for destination venues to remain viable.
City centre pubs, on the other hand, are performing well although many have had to introduce food sales to compensate for a fall in income. Due to the improvement in the general quality of restaurants, food provided in pubs has to be of a high quality and we are seeing that the gastro pub and restaurant models are merging.
In Glasgow we are seeing quick transactions for both confidential and fully-marketed instructions from both experienced operators and first-time buyers, whilst pub companies are still looking to retain barrelage profits in sought-after locations. Glasgow’s increasingly popular West End and Merchant City are key locations, and the introduction of more privately-owned quality bars and restaurants continues to contribute to a high level of footfall in these areas. The Hydro and SECC in Finnieston have also had a major positive impact and ensure a high volume of customers on a daily basis, supplementing the already busy weekend trade.
Edinburgh remains desirable with many buyers from the pub and restaurant sectors with popular areas including Stockbridge, New Town, Old Town, Morningside and Tollcross, with Lothian Road and Leith Walk both benefitting from somewhat of a resurgence in recent years. High quality fit-outs and a good quality food product in most pubs provides higher levels of competition which in turn ensures quality is maintained and customer satisfaction is high.
2016 will be known as the year that the UK made the decision to leave the European Union where polls indicated that Scotland as a nation backed the Remain campaign by 62% to 38%. With only finding out over this weekend that Article 50 will be triggered in March, it is safe to say that single asset owner operators and entrepreneurs alike have not been put off by the results of the vote. We have seen consistent buyers across the board seeking well-trading businesses across Scotland whilst pub companies are continuing to grow where needed. Over the past six months, we have seen a small number of first-time buyers question the stability of the market due to the recent referendum vote; however, we would put this down to lack of experience without any real reason for concern.
Where restaurants are concerned, city and town centre outlets are generally performing well, with the emergence of smaller street food concept units proving popular, especially within the city centres. Private operators are often battling with national chains, who continue to pay premium prices for sites in central Glasgow and Edinburgh. The quality of privately-operated restaurant businesses across the regions has improved as social media becomes more prevalent as a marketing tool, and the majority of operators have realised that mediocrity will not be tolerated by customers who can leave immediate reviews online.
Banks are generally keen to fund well-located properties with a strong trading pattern as going concern businesses, but lending levels tend to reduce when looking at more regional or rural businesses. In these properties, the bricks and mortar value becomes the benchmark for loan to value levels.
The full extent of the impact that Brexit and other political factors will have on Scotland’s pub industry remains to be seen, but we expect the sector to weather the storms and keep developing to ensure it heads in the right direction.