By Vanessa Cavasinni, editor Australian Hotelier
2016 was one of the most active and confident years for Australian pub transactions in a decade – what do the experts predict for 2017?
With over $800 million worth of real estate transacted in 2016, the conditions were indeed right for both buying and selling pubs across the country, particularly on the eastern seaboard. New South Wales dominated sales figures, with more than $500 million worth of assets being sold in the state.
So what can we expect in 2017? More of the same, or a slow-down of the market? We asked the experts.
Great conditions
According to John Musca of JLL Hotels & Hospitality, market conditions will continue to align, making at least the short term a great time to buy and sell – both for operators and investors.
"Capital continues to find its way to the sector where a 400-500 basis point spread still exists between sustainable earnings and the cost of debt, an attractive proposition for not just experienced operators but increasingly syndicators as well".
Regional growth
Regional centres are expected to provide more opportunities, as analysed by Andrew Jolliffe of Ray White Hotels:
“There will still exist a concentration of the lumpier transactions being consummated in gateway cities such as Sydney, Brisbane and Melbourne; however we also anticipate 2017 being a year where the transaction landscape is populated by greater numbers of sub-metro or regional centre sales, as investors look for yield value in both emerging and re-surging markets.
“A good example of this type of market is in Wollongong or Newcastle; and in terms of resurgent markets, many larger regional Queensland towns could enjoy the attention of counter-cyclical investors looking to take a strategic position in the asset class ahead of the next economic upturn.”
NSW strong as ever
The New South Wales market, and in particular Sydney, is expected to continue to prove popular. Daniel Dragicevich of CBRE Hotels expects hotel supply to continue to influence sale prices.
“As we look to 2017, we see no abatement of deal flow as market sentiment remains positive and the weight of capital fixated on the asset class increases. With the legislative and regulatory horizon relatively clear, market appetite for strong performing pub assets will remain constant in the first half of 2017. We see stock levels being a contributing factor to deal volumes and the pricing ultimately achievable for assets ‘in play’.”
Results from JLL’s latest global Hotel Investor Sentiment Survey also show confidence in the Sydney market, with investors having the most positive outlook for Sydney within the next six months inside Australia.
Yield contraction
One transactional trend expected in 2017, is the continuing compression of yields, as explained by Jolliffe.
“The key market indicator we view as continuing is yield contraction for A-grade freehold hotel assets. We participated in numerous transactions during the back half of 2016 at yields averaging 8.5% for hospitality properties of this nature, and subject to the continued availability of well-priced senior debt, we can see an argument for a further 50 or 100 basis point yield contraction for irreplaceable freehold assets.”
The general consensus? 2017 is going to be another big year for pub real estate.