Investors turn to coastal pubs as metro sales slow

September 17, 2018
By Alana House

Australian pub sales slowed in the first half of 2018 as pub owners held onto assets despite strong investor demand.

Leading commercial real estate company CBRE has released its ‘Australian Pub Trends’ report that notes value hunting for higher yields and value-add opportunities outside of the major cities is expected as the eastern states “reach the peak of the current yield compression cycle”.

The report follows CBRE’s sale of Club Hotel Waterford for $22million.

The Coles-leased hotel in South East Queensland was transacted at a yield of 5.68% – a new record for a freehold pub investment in Queensland.

CBRE notes: “Investors, particularly from a pool of NSW buyers, continue to hunt for assets in South East Queensland; however, not many owners are willing to part with prized assets.”

It said there hasn’t been much activity in Western regions as the drought and impact from the mining downturn remain high risks for investors. However, the Red Earth & Mt Isa Hotel recently sold for $25 million.

Buyers priced out of Sydney

CBRE described the Sydney market as particularly “hot”.

High-quality metropolitan assets remain highly sought-after, and CBRE said yields may compress further, driven by investors who are keen to get their hands on a prized hotel.

“Assets with value-add opportunities are attractive and investors continue to look at coastal areas,” it revealed. “While sales activity decreased in H1, yields sharpened a little to 7.5%-9% for quality assets.”

Higher yielding assets in coastal areas remain attractive to investors priced out of the metropolitan market. 

Newcastle, in particular, has seen a heightened level of activity in H1. Newcastle’s strong population growth and infrastructure developments are lifting the city’s profile. There is also strong buyer interest for Port Stephens, Central Coast, Illawarra, Shellharbour and Wollongong.”

Melbourne market booming

Strong F&B trade meant big demand for quality assets in the first half of 2018, exacerbated by the lack of assets available for sale.

Demand for leasehold pubs remained strong over the past six months, driven by Melbourne’s buoyant hospitality market,” said CBRE. “The lack of sellers in the first half of 2018 means that any assets put up for sale will likely be

snapped up quickly as operators continue searching for new opportunities.”

However, yield compression for freehold assets in metro areas has slowed in H1. This comes off the back of significant compression over the past 18 months.

“Owners are holding tightly on to their assets and the lack of stock for sale resulted in increased competition for assets when put up for sale. Buyers can expect to pay in the 4.5%-5.5% range to secure an investment, whereas rural and regional yields currently sit between 8% and 10%.”

Western Australia hurt by pop-up bars

The ongoing decline in discretionary spending in Western Australia has been flagged as a concern for operators struggling with high rental costs.

“Leasehold buyers remain cautious as F&B trade conditions have yet to stabilise and rentals remain high,” said CBRE. “Very few freehold sales occurred in Perth given the perceived over rental on many venues. Until we see revenues increase and rentals come in line with the market, we expect continued limited freehold investments transacting over the remainder of 2018.”

However, well-run and well-positioned going concern assets are in constant demand from the larger industry groups.

CBRE notes that the number of pop-up bars continues to grow in Perth. For the first time, the city saw two pop-up bars operate over winter.

“The increasing popularity of pop-ups has hurt traditional ‘brick and mortar’ venues in some locations.”

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