While the Australian economy in 2022 was dealt multiple challenges, one asset class that did not see diminishing interest was pubs. Hotel cashflows continued to be a magnet for investor capital, and 2023 could see the demand for pubs hits new heights, according to JLL’s Ben McDonald.
“In 2022 we saw the majority of transactions driven by long-term private hoteliers and groups taking advantage of the relative low cost of debt to grow existing portfolios. Buyers with long term investment horizons continued to seek out pubs offering tangible value-add opportunities and/or those displaying value-accretive characteristics for existing portfolios,” states JLL’s executive vice president Ben McDonald.
The demand for pubs was reflected in JLL’s massive year, facilitating 80 transactions nationally for its clients, as well as assisting some of the industry’s most respected and longest standing stakeholders in the divestment of often their largest single asset.
“The magnitude of such mandates is not lost on the team at JLL and we are grateful for the trust placed in the team by our clients and to have been able to repay that trust by maximising sale outcomes, often setting record results in the process,” states McDonald.
“Whether that’s selling the Apollo Bay Hotel on the breathtaking Great Ocean Road in Victoria or the Pendle Inn Hotel in Western Sydney for the first time ever by the family stakeholders, there was no shortage of highlights for the team in 2022.”
Standout sales by the JLL team in the last twelve months include include Victoria’s largest ever pub deal, Westwaters Hotel and Entertainment Complex, sold to Sydney-based Oscars Hotels for $85m; Longueville Hotel in Sydney, sold for the first time in history after 100 years of ownership by the private family stakeholders for circa $50m; and the sale of Stradbroke Island Beach Hotel, located in one of Queensland’s premier tourism locations attracting over 400,000 visitors per year.
The market in 2023
This year, the pub sales market offers both challenges and opportunities for investors and operators. The first key challenge is the debt market. Where is it heading? Aggressive rate hikes in 2022 did somewhat affect the ability of some potential buyers to pursue acquisitions.
“I think the market will be carefully watching the Fed to understand where the domestic cash rate will land and what the flow on will be for existing portfolio debt,” states the executive VP.
Proposed legislative changes around gaming will also affect acquisition strategy early this year, but the major challenge will be stock levels. The sheer volume of transactions over the last two years may mean that opportunities are harder to come by in 2023 as many long-standing owners have now exited. However this presents an opportunity for publicans looking to sell their assets.
“The positive here for owners is that the buyer pool for each asset may in turn swell due to a lack of alternate options, therefore leading to increased competition and heightened sale outcomes. My advice to those seeking to acquire is to get ready and be in a position to move quickly if the right opportunity arises,” suggests McDonald.
For publicans looking to sell this year, McDonald advises that getting the divestment strategy right for your asset – method of sale, length of process, on- or off-market – is crucial for a satisfactory outcome.
“The strategy is often the difference between crystallising a mediocre outcome or setting the market alight with the result. It’s that important. In addition, the quality of information presented to the market is also of significant importance, so getting your financial ‘house in order’ and asset records within reach ASAP is paramount.”
This article was originally published in Australian Hotelier’s 2023 Annual Industry Leaders Forum.