Pub buyers on the hunt for value-add opportunities

Sales activity in Australia’s pub sector dipped in the first half of 2018 as owners held onto prized assets, new CBRE research shows.

However, CBRE’s Australia Pub Trends report highlights that buyers are still hunting for higher yields and value-add opportunities outside of the major eastern seaboard cities, where yield compression is reaching its peak.

“While high-quality city pubs are continuing to transact on tighter yields, savvy investors are also looking further afield for sites with value-add opportunities,” CBRE Senior Research Manager, Danny Lee, said.

“This has been illustrated in New South Wales, with higher yielding pubs in coastal areas attracting investors who have been priced out of the metropolitan Sydney market, where yields have sharpened to 7.5%-9% for quality assets.”

CBRE Hotels Director Ben McDonald noted that yields could compress further for high quality metropolitan assets, however he said buyers were showing strengthening interest in non-metropolitan NSW markets such as Newcastle.

“In the Sydney market, industry stalwarts that went on a buying spree in 2017 have slowed activity in 2018 with a view to focusing on asset enhancement over the next 12 months,” Mr McDonald said.
 
“However, we’re fielding continued interest in markets such as Newcastle, driven by strong population growth and infrastructure development, as well as locations such as Port Stephens, the Central Coast, Illawarra, Shellharbour and Wollongong,”.

In Victoria, CBRE’s report highlights that strong F&B trade drove demand for quality assets in the first half of 2018, exacerbated by the lack of assets available for sale.

“Demand for leasehold pubs has remained strong over the past six months, driven by Melbourne’s buoyant hospitality market,” Mr Lee said, noting that the lack of sellers for both leasehold and freehold assets was expected to drive interest in available opportunities in the second half of 2018.

Turning to Queensland, Mr Lee said there was strong, yield driven demand for pubs in South East Queensland, however a lack of available stock was limiting transactions
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“There may also be a countercyclical play for savvy investors in coastal Queensland, with Gladstone and Townsville proving popular for investors capitalising on growth opportunities and infrastructure improvements,” Mr Lee said

In Western Australia, CBRE’s report highlights that an ongoing decline in discretionary spending remains a concern for operators struggling with high rental costs. A decline in food and beverage trade over the past few years has been another concern for landlords.

“Notwithstanding this, well-run and well-positioned going concern assets are in constant demand from the larger industry groups,” Mr Lee added.