CBRE Hotels has released Thirsty for Business, a report with current snapshot on pubs are faring in various states, as well as a look at the challenges ahead for the sector over the next 12 to 18 months.
Restrictions on trade have presented unprecedented challenges to the pub industry in 2020, but the CBRE report finds that publicans should be encouraged by the progress achieved by Australians in curbing the COVID-19 virus spread, with most state governments set to further ease restrictions in anticipation of lowering COVID-19 infection rates. The exception of course is Victoria, which has suffered a prolonged shutdown over seven months which has severely curtailed trade.
Elsewhere, anecdotal evidence points to some publicans enjoying strong performance after the initial lifting of COVID-19 restrictions in June, as a result of the pent-up demand. However the report warns that publicans must be cognisant of the challenges ahead, with consumer confidence and lending conditions expected to deteriorate across the sector over the next 12 to 18 months.
The report offers a breakdown of the current scenario for major state markets.
In Queensland, the sector is expected to see a two-speed economy between metro and regional pub markets, with gaming continuing to perform strongly under challenging conditions.
“Pubs in metro Brisbane are experiencing softer trading conditions as CBD worker numbers remain low, with office occupancy levels sitting between 35-45% of pre-COVID levels,” stated CBRE Hotels director Paul Fraser.
“Conversely, there has been a resurgence across key regional tourism markets such as Airlie Beach, the Gold Coast and the Sunshine Coast, with venue operators benefitting from a captive state market and displaced interstate travel.”
New South Wales has seen gaming performance achieve pre-COVID levels since the reopening of venues. Non-gaming venues and traditional F&B outlets across Sydney and regional NSW have not seen the same levels of uplift, and will have to rely more so on tourists to spur future performance.
Victorian operators have been the hardest hit in the country, and are beginning to pivot from business continuity towards business reopening as the state government sets out a roadmap to reopen F&B and gaming venues.
Western Australian venues have had the strongest recovery with the quickest relaxation of restrictions. Its hard border with the rest of the country also provides a level of certainty around continuity of trade for operators.
Despite trade conditions improving across the majority of the country country, CBRE’s head of hotels research Chinmay Chitale, says the pub industry faces a key litmus test over the next 12 to 18 months. As JobKeeper payments are being gradually phased out and amnesty periods offered by banks are expiring, further pressure on balance sheets is likely to build. Furthermore, rent abatements are due to kick back in with the additional 50 per cent rent to be added to existing rents over the remainder of lease terms.
Pub businesses will take solace, however, from the Federal Government’s FY 2020-21 Budget initiative to provide full capital asset deductions and loss carry-back provisions as a measure to reduce tax burdens and improve profitability moving forward. This should help alleviate some medium-term pressure off balance sheets.
Publicans must be ready to operate under a ‘new COVID-19 normal’ of subdued trading conditions and consumer confidence, as unemployment increases and wages stagnate.
“If COVID-19 cases in Australia remain contained, the industry faces a litmus test over the next 12 to 18 months but is expected to bounce back; however, there is concern for pubs that were struggling pre-pandemic, those that do not have the balance sheet or the cash flow to remain sustainable over the short to medium [term],” states Fraser.
“Pubs must therefore be leaner, smarter and, more importantly, create a unique place for human connection in order to succeed in this environment.”