Article by Shane Markey , Divisional Director, Licensed & Leisure, at Lisney. (smarkey@lisney.com)

Liquid Gold: Pubs as an Investment-Grade Asset

Pubs are deeply ingrained in Irish society and culture, yet they haven’t traditionally been recognised as an investment-grade asset. Over 90% of Irish pubs are owner-operated, mainly by individuals or small partnerships.

Recognising the potential and investing in the Irish pub market is not a new trend. Sean Quinn was one of the early pioneers in the late 80s acquiring The Barge, Quinns, Cat & Cage and Messr Maguires (Now J.R. Mahons) across Dublin city. He quickly installed quality tenants at rents ensuring double digit returns. After the 2008 financial crisis, an increased number of investors entered the market, attracted by low entry costs relative to potential profits. Notably, the majority of Liam and Des O’Dwyer’s Capital Bars (which included Café En Seine, The George, The Dragon, and Howl at the Moon) was acquired by Danu Partners for €15m; at the time the pubs had a combined turnover of €13.5m. As the market rebounded, investors continued to participate, albeit with a lower profile. Prominent groups like Press Up Group (Paddy McKillen Jnr and Matt Ryan), Loyola Group (Stephen Cooney), and Nola Clan (Alan Clancy) expanded rapidly at a rate that could only be achieved with external capital.

In recent years, there have been some large-scale acquisitions by investment managers such as Attestor Capital and Emerald Investment. Together, these entities have poured over €100m into Dublin’s licensed premises since 2020 – prior to their involvement in the market, the average annual value of the Dublin pub market was approximately €55m. Both investors have adopted a similar approach by putting operators in place under management contracts, allowing the new owners to retain the bulk of profits from the operating companies. Their overall strategy suggests a long-term hold and retaining these assets for a decade or more.

Comparing pubs to other investments

By using the above approach, pubs represent a compelling case compared to other asset classes. Profits from pubs in good trading locations in County Dublin range from 15% to 35%, depending on the revenue mix, with prime city locations generating even higher margins of 25% to 35%. Acquisition costs for prime assets typically hover around eight times the profit. At a high level for example, a pub generating €1m in profit could be acquired for €8m. After accounting for management fees, which might be around €150,000, the investor could achieve a return of €850,000, resulting in an annual return on investment of 10.6%.

This double-digit return is particularly attractive given the relatively low level of risk involved. Prime assets have generally experienced a consistent upward trend in profits over the past decade, excluding the pandemic, indicating a secure return barring any massive industry disruptions. When compared to rental assets, pub investments under this structure fare well. Prime commercial property yields range from 4.75% to 6%, making pub investments a more lucrative option. Additionally, pubs act as a hedge against inflation. Rising costs can generally be passed on to customers, as the relative affordability of their product means a slight increase in prices is manageable for most patrons. The pub trade is both resilient and sustainable, with revenue from prime pub assets typically increasing ahead of inflation each year. Insolvency is rare among Dublin pubs, further underscoring their stability as investments.

Resilience amid challenges

Despite numerous challenges, 2024 highlights the pub industry’s resilience. Wage bills increased by 12.5% in January, alongside multiple price hikes from major suppliers like Diageo and Heineken, as well as the reinstatement of the 13.5% VAT rate on food. These pressures, coupled with the general increases in the cost of living, would strain any industry. Nonetheless, while many operators may see reduced income, insolvencies have remained rare. In prime locations, where investment is typically focused, profit levels have largely been maintained despite these unprecedented pressures.

Future prospects

The Irish pub market presents a promising investment opportunity. The combination of high profit margins, resilient business models, and the cultural importance of pubs in Irish society makes them a valuable asset class. Investors looking for stable, profitable, and inflation-resistant investments will find pubs an attractive option, particularly in prime locations where revenue growth is expected to continue outpacing inflation. For the above reasons, we believe entrepreneurial private investors as will other investment management businesses, are going to focus on this sector as part of mixed real estate portfolios in the months and years ahead.

Need Advice on Licence and Leisure investment assets? Our expert team at Lisney is here to help.