By Andrew Starke

Private investors have driven a significant shift in the Queensland pubs sector, accounting for the lion’s share of all purchases in the past two years according to market analysis from CBRE Hotels.

The review highlights over $320 million in pubs sales in Queensland in 2009/2010 and concludes that a ‘three tier market’ has emerged.

CBRE hotels manager Craig Harley said more than two-thirds of those deals by value involved a private investor acquiring a freehold investment with a lease to a major corporate tenant.

Established publicans had been particularly active targeting distressed freehold hotels that were being offered for sale as going concerns.

On the flipside, ASX-listed entities such as ALH, Coles, Centro, Hedley Group and NLG had been the most active vendors after driving much of the buying activity in Queensland prior to 2009.

“We expect that private investors and publicans will remain the key purchasers in 2011,” Harley said.

“The demand will centre on good quality offerings in strong trading positions, which offer solid lease covenants. These prime pubs are likely to hold their value in 2011.”

The CBRE Hotels review points to the emergence of a three-tiered market – tier one involving freehold investment pubs, tier two involving freehold pubs offered as going concerns and tier three involving leasehold interests.

Harley said more than 22 ‘tier one’ hotels had sold in Queensland in the past 18 months, including the Runaway Bay Tavern at Runaway Bay, The Gap Tavern at The Gap, the Sunnybank Hotel at Sunnybank, the Club Hotel at Waterford West, Mansfield Tavern at Mansfield, the Royal Mail Hotel in Tingalpa, Burleigh Town Tavern at Burleigh Heads and the Oxford 152 Hotel in Bulimba.

“Yields have softened slightly over the past two years, and buyers have a key focus on properties which offer a long term lease to a major corporate,” Harley said.

In tier two large hotel families and major corporate groups such as ALH, Coles and IPG were chasing freehold pubs that were offered as going concerns.

Much of the buying activity in this sector has involved distressed operators and opportunistic purchasers, with major recent deals include the receivership sales of The Dog & Parrot Tavern at Robina and Shenannigan’s Hotel at Cairns.

The third tier of the market involves leasehold interests – effectively the pub business rather than the bricks and mortar – however Harley believes this is a limited market at present.

Recent deals in this sector of the market include the sale of the business leasehold interests in the GPO Hotel at Fortitude Valley, The Exchange Hotel in Brisbane and Magnums Hotel at Airlie Beach.

Contacted by TheShout for his view, Queensland Hotels Association (QHA) CEO Justin O’Connor said the CBRE report was an accurate snapshot of the current state of the Queensland hotel sector.

“The end of the current capital rise cycle occurred with the GFC in Q4 2008 and, since that time, Queensland hotel prices have moderated on the back of softer trading conditions, low consumer confidence and spend, and the reality that the ‘big two’ operators in Queensland (ALH – 110, Spirit Hotels – 88) have attained the general ownership and market share positions that they set out to establish,” he said.

“Having said that, good quality hotel businesses are holding up well, and there are buyers in the market. Understandably, they are being very careful and selective with their targets and offer prices.”

O’Connor predicts that informed buyers will continue to be very selective about what they pursue over the next two years and endorsed Harley’s views on the identity of those most likely to be on the acquisition trail.

He added that the current and likely future hotel sales market in Queensland is, and will likely remain, orderly and at a moderate activity level.

“Banks and other financial institutions are fully supportive of the wider hotel industry’s needs and market situation, and there is a sense of emerging business opportunity amongst both buyers and sellers of hotels,” he said.

“Foreclosures and businesses placed into receivership are likely to be very limited.”

From an overall industry stand-point, according to O’Connor, ongoing profitability is still in the hands of consumers.

“Discretionary spend remains tight across the whole of Queensland’s retail and hospitality sectors, and discretionary spend is likely to be further pressured by the recent widespread flood emergency, the impacts of Cyclone Yasi in northern Queensland and consumer concern about future interest rate rises.”

For further information contact Craig Harley by clicking here.


The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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