Billion-Dollar Appetite for Frothy Pub Market

Interest from family groups and investor consortiums looking to tap Australia’s frothy pub market will gather pace this year, according to sales agents, who are forecasting $1 billion in transactions this quarter.

While hospitality took a significant hit through the rolling lockdowns of the pandemic, the appetite for pubs went unabated, with New South Wales banking almost $1.5 billion in transactions across the sector last year.

Ray White Commercial head of research Vanessa Rader said demand for pubs took a “strong positive turn in 2021” and she said she forecast this trend would continue.

“Looking at NSW alone, $1.427 billion worth changed hands in 2021—this was up 143.88 per cent on 2020 results,” Rader said.

“There’s certainly a lot on the market, so I would say there’s still a way to go in terms of transaction volumes. We are seeing record prices and even a few months ago I would have said we were at the peak of the cycle, but it keeps going upwards … they’re numbers that we’ve never seen before in the pub market.

“As interest rates go up, investors in other asset classes will start to withdraw, but with pubs there’s still such a strong yield play.

“And there’s a really strong appetite for regional assets. Justin Hemmes is a great example of those family groups expanding their portfolios and looking at places that they would not have necessarily though to buy before.

“Many purchasers have identified an opportunity to provide quality entertainment as well as upgraded food and beverage offerings in response to population shifts in growing regional communities.”

Yields dipped to 4 per cent for the first time in history last year, but they are expected to normalise back to 5.5 and 7 per cent later this year, with yields in excess of 8 per cent in regional areas.

Rader said a $68-million transaction for the Vineyard Hotel last year demonstrated buyer appetite for development upside, while the Brunswick Hotel sold for the same price tag earlier this year.

“This highlighted the appetite for quality offerings in premier locations and a growing price point,” Rader said.

“Financing has been key for the vibrancy of this market … both bank and second tier lending has supported pub transactions over the last 18 months and, with more off-shore funding options entering the market, this is likely to be a feature during the year.  

“We have seen a number of experienced family groups, consortiums, and new players seek to grow their pub portfolios and we expect to see more generational assets come to the market looking to capitalise on the strong market conditions.”

▲ Singleton's iconic Caledonian Hotel has been listed for sale as pub-owners look to capitalise on red hot demand for regional assets.

Regional pubs continue to find a strong foothold in the market with a number of listings recently announced including the Caledonian Hotel at Singleton, which the Hill family has put on the market after receiving unsolicited offers over the past two years.

JLL vice president Kate MacDonald said hotel investor demand was at “an all-time high” in regional New South Wales.

“In particular, for locations within a two to three hour drive of Sydney,” Macdonald said.

“The Caledonian Hotel ticks all the boxes with a large landholding, 15 gaming entitlements, 14 accommodation rooms, on-site parking, and managed by single venue operators. The interest will be strong.”

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

“Merewether Beach Hotel is a truly magnificent property, with one of the best pub views in the country. It has been part of the community since the 1880s, so I feel humbled and excited by this once-in-a-lifetime opportunity to take it on,” Piper said.

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

The Merewether Beach Hotel was last sold in 2019 for about $20 million to Sydney hotelier Andrew Lazarus, who looks to have pocketed a tidy profit in an asset class that is showing no signs of a slow down.

There are forecasts that about $1 billion in transactions will be chalked up in the June quarter as more pub owners look to capture the red-hot demand. 

The Crossroads Hotel in Casula, 34 km south-west of the Sydney, has been picked up by former Sydney lord mayor Nelson Meers for circa $160 million—a national record for this sought-after asset class.