By Sam Handy, Jones Lang LaSalle
Following on from a frenetic 2014, the New South Wales pubs market has enjoyed an incredibly buoyant first half of 2015 with over 33 pubs transacting for a total transaction volume of an estimated $600 million.
Strong demand for pubs has been underpinned by a robust trading environment, easing debt liquidity and record low interest rates which combined with limited supply has caused significant yield compression. These fundamentals have attracted a raft of new buyers to the sector with the majority of these still being publicans seeking to aggressively expand their existing portfolios. Sales have largely come from long-time publicans seeking to divest underperforming or non-strategic pub assets and take advantage of the favourable investment metrics.
The state's gaming performance continues to soar and AAA gaming pubs have stolen the limelight once again. A cursory glance of the recent March quarter ranking report will demonstrate that 80% of Sydney’s best gaming pubs are owned by either gaming pub portfolio owners or are in corporate or institutional hands with neither segment having any genuine propensity to sell down any of these assets. The diminishing availability of these pubs has created renewed demand and we’ve subsequently seen some strong activity with notable transactions being the Crown Hotel ($31.9m), the Oasis Hotel ($40m) and the Macquarie Hotel ($24.5m)
Taking advantage of the continued strength of the NSW residential market, several savvy investors and developers have recognised the intrinsic value and unique ability that some hotel sites possess in terms of a holding income with large scale development potential. Such sales have included the Bull & Bush Hotel ($50m) and the Bourbon Hotel ($27m).
A grade coastal and regional pubs have once again become very attractive to investors priced out of the metropolitan market. Rather than acquiring a B or C grade metropolitan pub, buyers have been attracted to these assets which are often in dynamic locations, boast larger footprints, more compelling upside and offering a better acquisition yield. Some notable coastal transactions included the Bateau Bay ($11m), Coniston ($8.25m) and Unanderra Hotels ($7.2m), with the most significant regional sale being the Windsor Castle Hotel in Maitland which reportedly traded at $9.5m.
Looking forward the forecast for the second half of the year points to a similar level of transactions but with further yield compression as sellers become increasingly reluctant to relinquish pub assets in a generally rising market. Against this backdrop, it is difficult to gauge where yields will shift to by the end of the year. What is apparent though is that transactions are entirely bespoke to the parties involved and it is the mechanics of the deal which will dictate the sale price and yield profile.
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