The new financial year has kicked off with a flurry of high-value pub sales, as investors take a long-term point of view, suggests JLL senior vice president Ben McDonald.

You would be forgiven for thinking that an ongoing worldwide pandemic, an increase in cost of living and interest rate hikes would have slowed down the pub market. Instead, pubs are seen as some of the more favourable investment assets around, with the volume of hotel sales not slowing down at all.

“Transaction volumes overall are at two-decade highs, which I have no doubt will surprise a lot of people outside of the industry. On that basis, if you look at a rolling 12 months we are certainly pushing ahead of FY20/21,” states JLL senior vice president Ben McDonald.

“The new financial year has started extremely well with some landmark transactions already announced. The JLL pubs business has transacted over $300m of asset sales in the last seven weeks and close to $150m in the last week alone. Based on our pipeline of mandates and current book of work including one of our current listings, The Oaks, Neutral Bay, we don’t see a notable slowdown in deal volume anytime soon.”

While the banks aren’t yet tightening the purse strings significantly, McDonald notes that a good operating history is being considered more keenly.

“Our discussions with stakeholders is certainly highlighting a more measured approach from the banking fraternity in their approach to new business. From what we can see there is a bigger spotlight on the sponsors themselves, including balance sheet strength, track record, and a more conservative approach on Loan-to-Value (LVR) ratios for both new transactions and portfolio re-weighting.” 

On the buyer side, those with a long-term view are currently reaping the benefits.

“I think it’s reasonable to say the market generally is keeping a close eye on financial markets – both domestic and global – in order to position themselves accordingly and make the most informed decisions they can,” suggests McDonald.

“Hoteliers are an astute group with many having long-term investment horizons, so if the right opportunity presents itself it is still being aggressively pursued with sale outcomes reflective of the quality of those assets. We have seen this a number of times recently with the sales of the Longueville Hotel in Lane Cove New South Wales, West Waters Hotel in Caroline Springs Victoria, and the Lord Stanley Hotel in East Brisbane.”

Covid trading impacts are still being felt in varying degrees in CBD and metropolitan areas, however McDonald says it hasn’t been enough to faze groups wanting to expand their portfolios.

“We are not currently seeing this adversely affect sale outcomes or the market’s desire to grow existing portfolios. For example, we have just launched the sale process for The Republic in Sydney’s CBD and despite the impact of covid on the CBD over the last two years, the business has shown incredible resilience, which is why enquiry to date has been enormous.”

For smaller operators and new entrants to the market, the opportunities still lie outside of metropolitan areas as a jumping-off point.

“Strong regional or coastal locations underpinned by tourism are great places to start as they offer great lifestyle and amenity with pubs in a more affordable price bracket.”

However large or small, regional or metro, right now the pubs that hold the most appeal are ones with a good mix of revenue streams, and a decent trading footprint or land size that will allow for further development.

Expect the pub sales to keep rolling on.

This piece was first published in the September issue of Australian Hotelier, out now. Check it out below.

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