Investors swallow NSW and Queensland pubs

The commercial property pub sector in regional New South Wales and Queensland is enjoying another strong year, with favourable economic conditions expected to result in significant interstate buyer interest in properties on the market.

Glenn Price, senior manager of CBRE Hotels, says while the market is “patchy” in some areas, the Kondari Hotel and Resort in Urangan, in Queensland’s Hervey Bay, was one of the best covenants available.

The Kondari Hotel and Resort’s rental income is $873,394, with the property incorporating a drive-through bottle shop, tavern with bistro dining, 68-room resort hotel accommodation, a public bar and beer garden and approval for 42 gaming machines. It currently operates 35 machines.

On the up: Hotel demand drives historic highs

The property is expected to sell on a yield of 7-7.5%, valuing it in the region of $11.5 million to $12.5 million.

Similarly, Ray White Hotels sales executive Blake Edwards says he expects strong interest in Grafton’s Village Green Hotel, due to the current low interest rates, the property’s strong location and the ongoing infrastructure investment in New South Wales’ Clarence Valley.

Queensland’s Kondari Hotel and Resort is expected to fetch around $12 million

“There is a good amount of interest as it is a strong asset with an excellent turnover,” Edwards says.

“The hotel market is very strong at the moment.”

The Village Green Hotel has a freehold with bar, bistro, six electronic gaming machines and bottle shop.

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The bottle shop alone has turned over $105,352 in 2015, while the hotel’s total turnover in the last financial year was $7.4 million, excluding GST.

Market predictions are for the Village Green Hotel to sell for around $3 million.

Both the Kondari Hotel and Village Green Hotel are open to expressions of interest, which close on August 27 and August 26, respectively.

The hotel market is very strong at the moment

The listing of both properties comes off the back of an exceptionally strong 2014, when pub sales nationally reached a record high of $1.7 billion – an increase of 117.1% on 2013 – from 171 transactions.

According to the JLL Pub Investment News report, Queensland transacted $409 million of pub assets, with 40 sales in 2014, representing the second strongest result in the country. Only New South Wales, which recorded 44% of Australia’s sales worth a total of $742 million, fared better.

The JLL report says that ‘A’ grade coastal and regional pubs in New South Wales “once again became very attractive to investors priced out of the metropolitan market”.

The Village Green Hotel in Grafton is already generating strong interest

“Rather than acquiring a ‘B’ or ‘C’ grade metropolitan pub, buyers were attracted to these assets, which were often in dynamic locations, boasting larger footprints, a more compelling upside and offered a better acquisition yield,” the report says..

Queensland’s pub sales in 2014 jumped a staggering 81.9% on 2013, although the average deal size remained similar at $10.2 million.

But JLL says Queensland remains a polarising state, with resource-centric areas being largely avoided by buyers, and owners suffering both downturns in EBITDA and softening yields in these areas as workforces depart.

JLL says location is the key to buyer interest, with tourism hubs such as Cairns and Townsville, which have diverse economic drivers encompassing government, military, the resource sector and agricultural farming, retaining positive buyer sentiment.

Paul Fraser, senior vice president of investment sales at JLL, says: “On the back of record low interest rates and renewed sentiment from the lending institutions, 2015 is proving to be another year of strong transactional activity for the Queensland pub investment market.”

The JLL report supports this, stating: “It is becoming evident that owners and operators who have been traditionally New South Wales centric are viewing the Queensland market more favourably.”

“This is likely due to the increased yield compression created by capital land value increases and resurgence of interest in the New South Wales hotel market.”