Appetite for pubs drives movement in the market

Investor appetite for small hotels and pubs is hitting levels not seen since before the global financial crisis.

Commercial agents say low interest rates and hunger for properties at the top end are helping to fuel the market.

Demand for Sydney venues is very firm but is not being met with enough opportunities, according to CBRE hotels director Daniel Dragicevich.

“The A-grade pub market in metropolitan Sydney is extremely strong at the moment with plenty of buyers in what is a very tightly held market segment,” Dragicevich says.

“Some of the prices that are being achieved and the yields they represent are reminiscent of the pre-GFC pub market.

“Historically low-interest rates, a relatively clear legislative environment and the fact that many of the larger groups are looking for a similar style of asset has led to a price squeeze at the top end of the market and this is giving prospective sellers real confidence to go to the market and achieve a premium result.”

Some of the prices and the yields they represent are reminiscent of the pre-GFC pub market.

Dragicevich says activity around Parramatta, in particular, is being keenly watched as the city’s population swells.

The number of Parramatta residents is expected to  jump almost 14%, reaching 257,400 in 2031.

Building of infrastructure projects and residential housing is also strong, in a bid to keep up with expansion in other sectors.

The numbers have not been lost on prospective pub investors, with many of them rushing to snap up the rare buying opportunities earlier this year.

As the market loosens in response to the high demand, Dragicevich expects more owners to be cashing in their long-held pub investments.

One such vendor is private investor group TWL Hotels, which recently appointed CBRE to sell the landmark Rose & Crown Hotel in Parramatta.

The hotel has been consistently mong NSW’s top-150 gaming venues and is one of the only single-ownership venues on that list, Dragicevich says.

It sits at the heart of the city on Victoria Road and covers a 1126 sqm site. The sale includes a 24-hour hotel licence and 30 gaming machine permits.

Other NSW pub businesses that have recently been on the market are the Vegas Hotel Group in Sydney, estimated to be worth $40 million, and the Palms Hotel in Chullora, which supermarket Coles offloaded for $21.5 million.

Residential site a $220m drawcard

The 17,300 sqm Ascot Park residential development near Sydney’s Randwick Racecourse has been sold for $220 million to Hong Kong investors.

The site, Lat 66a Doncaster Ave just 6km south-east of the city, was designed by architect firm Popovbass to house 82 dwellings.

The planning approval obtained by vendor Anson City Developments 1  includes a six-level, 29-apartment residential tower and four blocks containing townhouses.

“This site was extremely attractive to Asian investors due to its great location,” says Steam Leung, Asian Division Director at Colliers International, which sold the property.

The DA approval and settlement is subject to Anson completing the project.

“This means there was minimal development risk for these investors, who, despite having property investments in their portfolio in Asia, are first time investors in Australia,” Leung says.

“Having received FIRB approval for the purchase, the sale is a strong indication of the high demand for Australian property investments for Asian developers.”

Leung says there are many investors, with upwards of $100 million to spend, who were looking for residential development sites.

Asian developers are attracted to Australian property due to high yields, market transparency and the significant real estate investment opportunities, according to Colliers International research.

Investor corners the market

The 739 sqm corner site at 46-52 St Kilda Rd, Melbourne, has been sold to a local investor for $3.92 million.

Selling agent Savills says the strong figure equated to $5304 per sqm or $112,000 a unit.

The site, which is on the outskirts of the CBD near St Kilda Junction,  has approval for 33 luxury apartments over six-levels and two ground-level retail spaces.

Vacancy rates are not the whole story

Melbourne’s industrial vacancy rate is at its highest since 2010 but pre-lease deals are strong and growing, a new report from Knight Frank shows.

Data for the year to April shows industrial sales worth at least $10 million soared 220% to a total of almost $1 billion.

Local institutions were the dominant buyers of the 33 properties that went on the market in the year.

The report estimates 464,355 sqm of new industrial sites will be developed during 2014, which is 5% higher than last year but 8% lower than the long-term trend.