A billion-dollar appetite for the sparkling pub market

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Interest from family groups and investor consortia seeking to tap into Australia’s bubbly pub market will accelerate this year, according to business agents, who are forecasting $1 billion in deals this quarter.

While hospitality has been significantly impacted by the continued pandemic lockdowns, the appetite for pubs has not waned, with New South Wales taking in nearly $1.5 billion in deals across the sector Last year.

Ray White, head of business research, Vanessa Rader, said demand for ads has taken a “strong positive turn in 2021” and she said she expects that trend to continue.

“Looking at NSW alone, $1.427 billion changed hands in 2021, an increase of 143.88% over 2020 results,” Rader said.

“There is certainly a lot in the market, so I would say there is still a long way to go in terms of trading volumes. We are seeing record prices and even a few months ago I would have said we were at the top of the cycle but it continues to rise…these are numbers we have never seen before in the pub market .

“As interest rates rise, investors in other asset classes will start to pull back, but with the pubs there is always such a yield game.

“And there is a very strong appetite for regional assets. Justin Hemmes is a great example of those family groups expanding their portfolios and looking for places they wouldn’t necessarily have thought of buying before.

“Many buyers have identified an opportunity to provide quality entertainment along with enhanced food and beverage offerings in response to population shifts in growing regional communities.”

Yields fell to 4% for the first time in history last year, but are expected to normalize to 5.5 and 7% later this year, with yields above 8% in regional areas.

Rader said a $68 million deal for the Vineyard Hotel last year demonstrated buyers’ appetite for the development, while the Brunswick Hotel sold for the same price earlier this year.

“It highlighted the appetite for quality offerings in prime locations and increasing price,” Rader said.

“Funding has been key to driving this market…bank and second tier lending have supported pub deals over the past 18 months and with more offshore funding options entering the market this should be a feature during the year.

“We have seen a number of experienced family groups, consortia and new players looking to grow their pub portfolios and we expect to see more generational assets hitting the market to take advantage of the strong market conditions.”

▲ Singleton’s iconic Caledonian Hotel has come up for sale as pub owners seek to capitalize on searing demand for regional assets.

Regional pubs continue to establish themselves firmly in the market with a number of recently announced listings, including the Caledonian Hotel in Singleton, which the Hill family put on the market after receiving unsolicited offers over the past two last years.

JLL Vice-Chair Kate MacDonald said hotel investor demand was at “an all-time high” in the New South Wales region.

“Particularly for locations within a two or three hour drive from Sydney,” Macdonald said.

“The Caledonian Hotel ticks all the boxes with a large landholding, 15 greens fees, 14 accommodation rooms, onsite parking and managed by single site operators. Interest will be strong.

Hotelier Glenn Piper recently spent around $40 million on the Merewether Beach Hotel in Newcastle, with a small syndicate of private investors.

“Merewether Beach Hotel is a truly stunning property, with one of the best pub views in the country. He’s been a part of the community since the 1880s, so I feel humbled and excited about this unique opportunity to grab him,” Piper said.

The sprawling pub has a development app in place, but Piper is known for his thoughtful approach to redevelopments, taking the time to do due diligence.

The Merewether Beach Hotel was last sold in 2019 for around $20 million to Sydney hotelier Andrew Lazarus, who appears to have pocketed a handsome profit in an asset class that shows no signs of slowing down.

It is expected that around $1 billion in deals will be booked in the June quarter as more pub owners seek to capture scorching demand.

The Crossroads Hotel in Casula, 34 km southwest of Sydney, was bought by former Sydney Mayor Nelson Meers for around $160 million, a national record for this sought-after asset class.

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