CBRE Senior Research Manager Danny Lee said improved trading conditions and a relatively stable legislative environment had underpinned a healthy volume of transactions in Australia’s eastern states, with Sydney metropolitan pubs assets now trading at pre-GFC yields of 7.5%-8%.

“Tighter yields in NSW and Victoria have led astute investors to cross geographical boundaries and seek upside potential through more strategic site selection and asset enhancement to improve returns,” Mr Lee said.

“The South East Queensland pub market has also been performing strongly, however limited stock available for sale has pushed some investors to expand their portfolios elsewhere.”

Potential hurdles on the horizon include the 2019 Federal Election and the tightening of lending practices following the Banking Royal Commission – both of which have the potential to slow transaction activity.

“Nevertheless, we expect sales volumes in 2019 to remain healthy, as investors remain keen to expand their portfolios,” Mr Lee said.

CBRE Hotels Director Paul Fraser added; “We are still seeing top tier, A-grade performing gaming hotels as the most in demand property on the eastern seaboard. Solid performing hotels outside key metropolitan areas with sound fundamentals are also still attracting strong interest, including assets in resource-centric areas such as Gladstone and Mackay and in key coastal markets such as the Central Coast.”

Click here to download CBRE’s latest Pub Trends report.

NSW

In addition to the above-mentioned trends, coastal hotel markets garnered high-interest, driving key sales and pushing yields lower. Continued interest in Newcastle saw its largest pub deal completed in 2018 with the portfolio sale of Rogers’ Hotels. This competition for assets is fuelling further cap rate compression with coastal pub yields ranging from 8.5% – 10.5%.

Victoria

Passive freehold opportunities in metropolitan Melbourne continue to experience high levels of demand, but the limited stock for sale has resulted in tighter yields. The Montague Hotel, South Melbourne, sold earlier last year on a yield of just 3.25% and the Park Hotel Abbotsford sold on a yield of 2.88%. Freehold vacant possession opportunities also continue to attract significant interest from investors as do leasehold opportunities, as highlighted by the sale of the Royal Saxon Hotel, Richmond, to a new entrant to the Melbourne market.

Queensland

Consistent with previous years, the demand for pubs in Queensland remains centred around South East Queensland, particularly for A-grade gaming pubs of considerable size, however stock remains limited. Resource-centric areas are also being revitalised as the mining industry comes out of its lull, providing a potential countercyclical play for operators with an appetite for higher yield and scope for strong bottom line improvement, as the economy recovers. This partly explains the increase in the number of deals in 2018, including the sale of Grand Hotel Cairns for $8.5m, and the Mackay Grand Suites for $20m.

Western Australia

The ongoing decline in discretionary spending in WA along with increasing rents have been a significant factor in the closure of several venues. However, the recent sale of the Breakwater Hotel, Hillarys in December 2018 indicates there is still an interest in leasehold assets positioned in high traffic areas. Freehold going concern assets also remain in high demand as operators wish to control their destiny, however only two notable freehold going concern sales have occurred since December 2017: The Brighton Hotel, Mandurah and the Parade Hotel, Bunbury.

Click here to download CBRE’s latest Pub Trends report.

To discuss the hotel sector in further detail, phone or email Paul Fraser or Ben McDonald via the below contact details.

See also:

"Continued transactional appetite expected for the NSW pub market in 2019" - John Musca, JLL Hotels

"Pub buyers moving north into Queensland" - Power Jeffrey & Co, CBRE Hotels

Gold Coast shines as Australia's top hotel market for 2018 - CBRE Hotels report