Why public houses make popular commercial investmentsBy: Chris Baguley

What with the smoking ban, cheap supermarket alcohol and the nation tightening its purse strings, many public houses up and down the country are calling last orders for the final time.

In Britain, an estimated 18 pubs close every week,* allowing investors in this oversupplied and saturated market to acquire stock significantly below market value.

According to the Essential Information Group, auction houses are driving these sales with £59 million worth of pubs sold under the hammer in 2012. The latest statistics show that 64 per cent of pubs up for auction were successfully sold in Q1 2013, with a third of these premises expected to see a change of use.

The Midlands, North East, Northern Ireland, Scotland and the South of England have all experienced a 20 per cent increase in public house lots for sale in the auction room in the past 12 months.

Change of use
These disused pubs have become an attractive investment opportunity for many property developers. Pub companies are selling off stock to reduce debt and, with many of these sites occupying prime locations with good transport links, spacious gardens and numerous outbuildings, they are ideal for a range of uses, including luxury flats, surgeries, retail units, nurseries, restaurants, adult learning centres and care homes.

It is good to see these buildings being brought back to life, which can help regenerate an area, rather than seeing them left derelict.

Investing in public houses
For anyone considering purchasing a former public house at auction, it’s important to check whether it has been de-licensed otherwise, as the new owner, you will have to gain planning consent for change of use.

Change of use is becoming easier to secure as the market is more open to converting empty commercial premises into residential space. Many commercial landlords are now turning pubs into houses in multiple occupations (HMOs) for student lets and taking advantage of the high yields achievable.

It’s worth remembering there are also some good incentives and tax breaks available when converting commercial property into residential. In some cases refunds on VAT can be claimed on some of the building materials and conversion services used.

The flat conversion allowance, introduced in 2001, is intended to encourage the conversion to residential use of empty or under-used spaces above shops and other commercial premises. The scheme allows the investor to claim an initial 100 per cent capital allowance on the cost of conversion as long as the associated conditions at met.

With the right planning consent pubs have enormous potential for shrewd commercial property investors.

Tips for investors buying a pub at auction

• Pubs have flexible A4 planning that can normally be changed to A1, A2 or A3 (small shops, financial and professional services. restaurants and cafes).
• Think beyond the bricks and mortar. Many pubs have land, central locations in the community and car parks, all of which are attractive development opportunities.
• Before buying, ask local planners about their attitude to the pub, especially if it is in a conservation area.
• Look out for cold investment opportunities at auction. This is where rent is collected from an existing tenant, but where there is potential for redevelopment or re-use at a later date.
• Don't be put off buying a Grade II listed building. You can still achieve an interesting refurbishment by working closely with the local conservation officer.

About the author 
Chris Baguley is the director of Auction Finance Limited, a national short-term lender that provides finance for property professionals purchasing at auction. 

www.auctionfinance.co.uk

* Figures sourced from http://www.mirror.co.uk/news/uk-news/beer-price-fix-fury-call-for-ministers-1441676