Market Insights
THE PROPERTY DEVELOPMENT REVIEW
Hundreds of people tuned in to RWC’s Between the Lines Live webinar where the panel of experts discussed the hotel and tourism market. EXPERTS DISCUSS THE FUTURE OF AUSTRALIA’S PUB MARKET
Article supplied by Ray White Commercial
Ray White head of research Vanessa Rader hosted the webinar and was joined by HTL Property managing director Andrew Jolliffe and HTL Property national director for investment management James Smithers. After the market peaked in 2022, with more than $2 billion in transactions in NSW alone, Mr Jolliffe said while the market had cooled slightly, pubs were still in hot demand. “The calendar year of 2022 saw a peak in transaction volumes with more than 100 pubs sold for the state,” Mr Jolliffe said. “Volumes in 2023 were lower, driven by the interest rate rises and with liquidity being less accessible, plus a change in the cadence of the investor. “We’re in 2024 now and we believe it will be up on 2023, not where 2022 was, but certainly bouncing back. “It’s been quite listing driven, but in a geographic sense regional/coastal activity is still really a feature. However, there has been a greater proportion of metro assets sold in 2024 compared to the previous years. “Generational families or experienced private groups are still the majority of who are buying hotels. However, some domestic and offshore funds have also taken an interest, with some high-level, sophisticated, transactions going on.” Mr Smithers said pubs were able to provide a lot of value for investors. “Pubs have been an asset class people have misunderstood, but you have five potential income streams across food, beverage, gaming, retail, and accommodation,” he said. “The high-floor of the space is exceptional. The opportunity for sophisticated investors to optimise all five revenue streams rather than traditional operators that focus on just two or three.
“There’s a lot of conversation about discretionary spending, but people are still going out, but they’re choosing venues with stronger offerings. So those venues with all five revenue streams are seeing increased footfall.” Mr Jolliffe said yields had moved along with interest rates, but pubs were a “good bet”. “They’re a good bet for a bank as they have prosperous cash flows, and you can influence revenue and profitability in a pub which makes them an attractive asset class for lenders,” he said. “We have $100+ million dollar assets, so we’re an asset class with a bit of fire power now. “There’s a bit of discussion around downward pressure on rates, it might be next year but I hope it’s this year. “Let’s see post-July 1 with some stage three tax cuts, that will provide some relief for a lot of people so we might see more people wanting to go out for a night of entertainment.” Mr Smithers said, as an asset class, pubs need to be able to move with the times in order to maintain their profitability. “Pubs sit with an ability to utilise their square meterage more aggressively, but the air space above that is where the opportunity rises,” he said. “With their location often on the high-streets, these assets are transitioning to precincts. Publicans are realising they need to be more universal in how they service consumer needs in changing demographics. “I think we can be better in how we service consumers through the next phase, and how we approach development in the future is critical. “The next 6-12 months will be an interesting time and I think assets will be keenly contested, and that development space will be important as investors look to diversify in a high-delivery sector.”
October / November 2024 – 21
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