By Vanessa Cavasinni, editor Australian Hotelier
In a recent roundtable, various stakeholders in the pub industry discussed several facets of the industry, and the cumulative affect they have on pub operations currently.
The roundtable was held by Morgan Kelly at Ferrier Hodgson, and was attended by hoteliers, lawyers specialising in hospitality, valuers and pub real estate directors, representing various stakeholders in the industry.
“The lineup of industry experts and participants was first class, and some very valuable insights emerged from the discussion,” stated Kelly.
The general consensus was that it is currently a bullish market and the hefty premiums that pubs are now fetching, particularly in metropolitan areas, have likely peaked but will could possibly remain this strong for the next six to twelve months. However several participants have also begun encouraging caution, noting that banks are becoming more conservative in their lending, and that entry into the market for first-time operators is becoming increasingly difficult. The main take-outs from the session were:
Barriers to finance: Several participants in the roundtable agreed that access to finance is becoming increasingly difficult, with banks requiring much more criteria now to approve loans. Acceptable LVRs are much higher now than they were a couple of years ago, meaning a higher proportion of capital is required as a deposit. Banks are also requiring in-depth proof of operational experience as another set of criteria before they will lend.
Freeholds v leaseholds: With freeholds scarce within metropolitan areas, leaseholds have become the more attainable option for hoteliers wanting to operate within Australia’s cities. But Scott Robertson, director of Robertson & Robertson Consulting Valuers, stresses that operators should exercise caution when considering leaseholds. Operators are urged to read the fine print, as conditions of the leasehold, such as demolition clauses, can wipe out a business if not accounted and prepared for. It was also noted that as the more affordable alternative is freeholds in regional areas, the supply of these sorts of assets is starting to decrease, as savvy operators have started snapping these up already.
The next generation: With so many barriers to entry to the industry, who will be the next generation of hoteliers, and how will they enter the market? While there will likely be succession from family and large hotel groups, how will prospective operators outside of these avenues get a foot in the door?
Smoking: While smoking regulations have been at the forefront of hotel zoning for the last couple of years, participants at the roundtable expect this to become an even bigger concern in the short- to medium-turn, with inspections expected to increase shortly, and speculation that the stricter smoking regulations (including a complete smoking ban) are expected to hit New South Wales within five to seven years. This would have far-reaching implications for hotel operations, affecting several revenue streams.
High benchmarks: On a much more positive note, it was agreed by all that the benchmark of pub standards have lifted significantly in the last three or four years, with pubs upping the quality of their offerings, particularly in F&B, significantly.
Reinvestment: With such higher consumer expectations and increasing competition from small bars and restaurants, let alone neighbouring pubs, it was suggested that the hotels that operate well reinvest in their venues frequently. Whether this is through renovations, staff development, changing F&B offerings or other streams of revenue, the best hotels are those that continually evolve their offering to remain inviting and relevant.