There are many types of restaurant and different categories of purchaser, with entirely different requirements for the type of property they require and the leasehold terms they are prepared to accept. A valuer will only provide an accurate valuation if it reflects the wishes and returns required by the most likely type of bidder for a particular property (such as an owner/occupier, multiple operator or a franchise operator).
Unusually (and subject to reservations), capital valuations are generally made using the profits method of valuation and analysis, whereas rental valuations are made and analysed having reference to measured areas (although operators will still create business plans and decide whether to take or keep leasehold premises based strictly upon profit considerations).
This section should be read in conjunction with RICS guidance notes The capital and rental valuation of public houses, bars, restaurants and nightclubs in England and Wales and VPGA 4 Valuation of individual trade related properties. RICS guidance emphasises that a trade related property is usually valued by treating the physical property, the trade inventory and the market's perception of the trading potential for the business as single entity. It is the potential income from an operational entity that is the primary concern of a purchaser. Therefore valuers need to be actively involved in the market for this property class, as practical knowledge of the trading aspects of the business is fundamental to the analysis of the property's existing operation and trading potential.
Restaurants were previously grouped together with public houses and hot food takeaways as part of A3 under the Use Classes Order 1987. There are now separate use classes for public houses (A4) and hot food takeaways (A5). Care must be taken in reading leases and other documentation as to whether the permitted use relates to the previous Use Classes Order or the amended use class.
Valuers might encounter various types of restaurant and different aspects affecting value. Capital valuations and rental valuations outline valuation methods and valuation worked examples illustrate points from the main text.
At the time of this update in early 2021, the UK, as with most of the world, is still in the midst of the COVID-19 pandemic. At various stages throughout 2020, the UK government introduced a series of measures to combat the outbreak. This has involved various lockdowns and the introduction of a system of measures that directly impact on restaurants.
For the majority of the 2020 summer, most restaurants were only able to sell takeaway food. The introduction of tiered restrictions meant that restaurants in areas with higher levels of infection could still only operate a takeaway service. Only restaurants in tiers 1 and 2 were able to operate on-premises. However, most have had to restrict capacities to allow for social distancing.
The temporary closures and restricted trading have resulted in limited transactional activity during the majority of 2020. Valuers should adopt a cautious approach and consider the most recent level of restrictions and commentary on reopening, as this is changing on an almost daily basis.
In March 2021, the government introduced a ‘roadmap’, setting out the strategy to remove lockdown restrictions. As of 12 April, pubs are able to serve customers outdoors. From 17 May, customers can be served indoors and from 21 June, it is anticipated all restrictions will be lifted.
In the Valuation practice alert - COVID-19 dated 6 November 2020, RICS recommended valuers who continue to value incorporate a ‘material uncertainty clause’ into their valuation reports, as set out in VPS 3 and VPGA 10 of RICS Valuation – Global Standards. This is being kept under review until the market stabilises.
Related RICS standards and guidance: The capital and rental valuation of public houses, bars, restaurants and nightclubs in England and Wales
Related RICS standards and guidance: Comparable evidence in property valuation
Related RICS standards and guidance: RICS Red Book
Related template: Restaurant valuation checklist
Related feature: Valuing trading potential