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Spring 2010
Licensed Retail
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Occupier demand improves for quality premises in good locations, despite generally fragile confidence
- Signs of operational resilience, with some operators reporting positive like-for-like sales growth in 2009, although at the expense of margins in some cases.
- Some large multiple operators are pressing ahead with expansion into 2010, although at a lower rate than previously planned, looking to capitalise on increasing incentives offered by landlords.
- Investor appetite for pub/restaurant assets is returning.
- The publicised difficulties facing the tenanted pub companies has resulted in a divergence in pub and restaurant yields.
- The stronger covenants and locations typical to the branded restaurant sector mitigated the outward shift in yields, compared to pubs. However, both sectors saw yield hardening over the second half of 2009.
- Prime yields outside of London are now in the region of 6.5% for pubs (Central London achieving between 5% to 6%) and 6% for restaurants. A further 50bp fall is forecast over the next 6 months.
- Central London commands the most expensive rents, with top rents of between £45-50 per sq ft. However, the use of rent free periods has reduced the net effective rent paid by tenants.
- The 2010 Rating Revaluation may present some difficulties for operators and landlords/investors.
- Location should be key when assessing values as a strong location will ensure that if an occupier fails there will be interest from elsewhere.
- Licensed Retail's future fortunes will be dependent on the return of consumer confidence, but occupier demand remains for quality premises in good locations.
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