A scarcity of opportunities and low interest rates are set to drive further compression of yields in the Australian pub sector in 2020, according to CBRE’s latest Pub Trends research.

The sector in 2019 was characterised by a slow start, due to the Financial Services Royal Commission and May’s Federal Election, before buyer confidence and spending picked up again.

The outlook remains positive entering 2020, with investors looking to capitalise on Reserve Bank interest rate reductions amid a competitive environment with limited available stock. 

At a Glance:

• Yields are lowering in line with interest rate reductions
• Well located commercial properties, including pubs, are viewed as ‘safe haven’ investments
• Strong demand for A-grade, Freehold Going Concern pubs

“The pub sector was not alone in experiencing turbulence in 2019, with the Banking Royal Commission followed by the Federal Election in the early months of the year,” said Paul Fraser, CBRE National Director, Hotels.

“Coming out of the other side of that, sentiment and confidence in the market have been strong and the economic conditions improve across 2020. 

“Yields are lowering in line with interest rate reductions, so we’re seeing pent up demand and people looking for secure investment opportunities.”

Mr Fraser said stable governance and legislation in the major markets was helping the positive outlook, and that pubs remained a popular investment.

“There’s considerable global uncertainty at present, which is causing stock market volatility,” said Mr Fraser.

“Well located commercial properties, including pubs, are viewed as ‘safe haven’ investments and we are seeing established and larger-scale venue operators expanding their portfolios with bolt-on acquisitions.

“We’re seeing particularly strong demand for A-grade, Freehold Going Concern pubs, which will likely result in further yield compression.”

CBRE’s Pub Trends research highlights that Australia’s eastern seaboard continues to be a key focus area for investors, with New South Wales recording the heaviest transactional rate ahead of Victoria, and south-east Queensland witnessing strong growth.

In NSW, strong demand coupled with limited transaction opportunities is forecast to continue to drive asset values, while the repeal of Sydney’s Lockout Laws is expected to boost investment in the broader hospitality sector.

“New South Wales is head and shoulders above the rest of Australia in regard to pub transactions,” Mr Fraser added.

“Demand is outweighing supply, though, so investors are having to look elsewhere, with Queensland among the beneficiaries as vendors and purchasers there become more active. 

“Victoria will continue to benefit from strong demand drivers, while its stable regulations will attract investment from Tasmania and South Australia following significant gaming reforms in those states.”

To find out more details on the 2020 Australia Pub Trends click here

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