Investors Still Thirsty for Pub Assets

Stock market volatility on the back of global uncertainty won’t quench investor thirst for the pub market in 2020.

CBRE Hotels national director Paul Fraser said the turnaround in market sentiment that ignited increased transactional activity late in 2019 is set in to continue, with 2020 expected to deliver solid investor interest in the pub sector.

Commenting on CBRE’s Pub Trends report, Fraser said the outlook remains positive for 2020, with investors looking to capitalise on RBA interest rate reductions amid a competitive environment with limited available stock.

“There’s considerable global uncertainty at present, which is causing stock market volatility.

“Well located commercial properties, including pubs, are viewed as ‘safe haven’ investments and we are seeing established and larger-scale venue operators expanding their portfolios with bolt-on acquisitions,” Fraser said.

Fraser said that with stable governance and legislation in the major markets helping the positive outlook, pubs remained a popular investment.

“Yields are lowering in line with interest rate reductions, so we’re seeing pent up demand and people looking for secure investment opportunities.

“We’re seeing particularly strong demand for A-grade, freehold going concern pubs, which will likely result in further yield compression,” Fraser said.

Australia’s eastern seaboard continues to be a hot spot for investors, with New South Wales recording the heaviest transactional rate ahead of Victoria, and south-east Queensland witnessing strong growth, according to the report.

In NSW, strong demand coupled with limited transaction opportunities is forecast to continue to drive asset values, while the repeal of Sydney’s Lockout Laws is expected to boost investment in the broader hospitality sector.

“New South Wales is head and shoulders above the rest of Australia in regard to pub transactions,” Fraser said.

Following on from the record-breaking 2019 sale of Byron Bay's famed Beach Hotel—the first pub deal in Australia to surpass $100 million—transactions following the trend this year include HTL Property’s sale of freehold interests Sydney’s Gregory Hills Hotel, along with the listing of Sydney’s historic Fitzroy Hotel and the Anglers Rest Hotel on the banks of the Hawkesbury River.

HTL managing director Andrew Joliffe said his firm—which has the listings—has already closed $200 million worth of sales nationally.

“This is well inside the first two months of the calendar year alone, in what is traditionally considered the more modest of the four trading quarters,” Joliffe said.

CBRE's report also reveals that with demand outweighing supply, investors are tapping into Australian punters' love of a beer further afield - and Queensland vendors and purchasers are becoming more active as a result.

In the Sunshine State, following strong 2019 sales including the $22 million Airlie Beach Hotel and the $34.1 million sale of the Red Earth Hotel and Mount Isa Hotels, transactions in recent months also support the data, with the Acacia Ridge, Elephant & Wheelbarrow and Shearer's Arms hotels all selling to primarily interstate interests.

HTL property director Glenn Price said the recent off-market sale of the Shearer’s Arms, in Brisbane’s Ormeau—to Matt Coorey in partnership with Sydney’s Royal Hotels Group—was the firm’s fourth significant Queensland freehold hotel asset sale this year, and interest was indicative of the market.

“The scarcity of available A-grade product meant the interest in the opportunity was so high we could have sold the asset five times over,” Price said.

And in Victoria, where notable transactions last year included the sale of the Summerhill Hotel in Reservoir ($20.5 million); Bendigo's Shamrock Hotel ($7 million) and The Lord of the Isles in Geelong ($10 million), hotel operators are set to benefit from long-term certainty offered by gaming legislation secured through to 2042.

“Victoria will continue to benefit from strong demand drivers, while its stable regulations will attract investment from Tasmania and South Australia following significant gaming reforms in those states,” Fraser said.

In Western Australia, where notable transactions last year included the sale of the Subiaco Hotel ($10 million) and Karratha's Tambrey Tavern ($6.9 million), going concern assets were expected to remain in high demand, with growth of the FIFO workforce as a result of improved confidence in the resource sector expected as new mining projects are approved.

Hero image: The sale of Byron Bay's famed Beach Hotel for a record-breaking $100 million in 2019 ignited transaction activity in the pub sector, expected to continue in 2020.