RCA Insights

Australian Pubs Lure Investors in Spite of Lockdowns

By on September 28th, 2021

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Despite strict lockdowns that have been implemented to varying degrees across much of Australia over the last 18 months, property investors have shown a remarkable interest in acquiring pubs, with transaction volume on course to eclipse previous highs.

In 2020, sales volume for pubs declined 22% vs. 2019 which, compared to drops of 50% and 43% for the hotel and retail sectors respectively, shows substantial resilience. Moreover, considering that this alternative investment segment relies on in-person patronage, the relative strength is surprising.

Equally surprising is the performance of the sector to date in 2021. Investor acquisitions through late September reached A$1.10 billion (US$0.8 billion), a hair off the record full-year hauls of A$1.16 billion in both 2017 and 2019. With the recent announcement that Charter Hall Long WALE REIT (<<profile>>) and a Charter Hall-managed trust on behalf of Host-Plus Pty Limited (<<profile>>) are set to acquire pub and hotel owner ALE Property Group (<<profile>>), 2021 is on track to be a record year.

Investors don’t appear to have been completely put off by the numerous lockdowns Melbourne has undergone and the one Sydney is currently experiencing. Yet, it’s deal activity in regional areas that has seen the most substantial growth compared to previous years. So far in 2021, acquisition volume in regional areas has increased 135% on the 2017-19 average and regional areas have accounted for just under half of national transaction volume, compared with 20% in the years pre-Covid.

One likely reason for this growth is that regional areas have fared significantly better in the Covid era, with extended lockdowns mainly confined to metropolitan locales. This, coupled with the regional population growth as people leave capital cities in droves, has given pub investors added impetus to seek out assets beyond metro boundaries. Merivale (<<profile>>), for example, picked up The Quarterdeck in Narooma on the south coast of NSW, and Laundy Hotels (<<profile>>) acquired Springdale Heights Tavern in Albury NSW.

Demand for the segment has pushed down yields. As measured by the RCA Hedonic Series, which controls for quality and locational differences in the underlying sample, yields have compressed by 50 basis points since Q1 2020 to reach 5.3% nationally.

Pub investors may be banking on the much-vaunted idea of “revenge spending” as those cooped up for extended periods eagerly await the chance to spread their wings and experience a taste of what life used to be before Covid. If this idea does come to pass, it may further affect prices in the pub sector and the potential entrance of new players to this market.

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More by Ben Martin-Henry on RCA Insights:

Australia’s Listed Firms Offload Office, Lean Industrial

Australian Retail Sector Comes to Life in Early 2021

 

Benjamin Martin-Henry

Head of Analytics, Pacific
bmartin-henry@rcanalytics.com

Benjamin Martin-Henry is the Head of Analytics in the Pacific region and an experienced market commentator, working in commercial real estate research for over a decade. Based in Sydney, his particular focus in recent years has been in the capital markets space and the nascent build-to-rent sector.