Investors warned to stay away from Adelaide hotels by Ferrier Hodgson report

Investors are being warned to stay away from Adelaide’s pub industry, which is battling high rents, falling gaming revenue and increased competition from small bars.

The Stag in Rundle St has encountered rough times recently but has a new lease of life

• The Fat Stag in administration just three years after it last closed
• The Office on Pirie closes down
• Jack Ruby was on the market in 2016
• The Archer closes after failing to sell

Investors are being warned to stay away from Adelaide’s pub industry, which is battling high rents, falling gaming revenue and increased competition from small bars.

Following a number of high-profile CBD and suburban venues either closing or entering insolvency on the past 12 months, forensic accountants Ferrier Hodgson has declared that “they days of sustained incremental rises on pub rents (and values) in South Australia appears over”.

In a blast to the industry, partner David Kidman said it was “no secret that many operators in the industry are seeing their bottom line deteriorate”.

He said this was due to factors such as an increase in small-bar licences now in the CBD, declining gaming revenue, which is down by 6 per cent in the past three years, increased costs and ageing venues that were experiencing no reinvestment.

“In the past 12 months we have seen many of the state’s leaseholds closing and/or

entering insolvency,” he said.

“These include CBD venues such as the Office, the Stag (again), Jack Ruby, the Colonel Light (again) and the Ambassadors and iconic suburban venues including the Semaphore and the Archer.”

Some of those such as the Stag and the Ambassadors have received new leases on life, and are hoping a change of ownership or operator leads to more success.

Mr Kidman said rents in many hotels were too high and Ferrier Hodgson was aware of some landlords were having to adjust their rent down by up to 35 per cent or no upfront capital payment.

The Archer Hotel in North Adelaide closed down in November.

“Those struggling operators that aren’t in a position to have rent reviewed will continue to remain vulnerable to business failure,” he said.

Australian Hotels Association SA general manager Ian Horne said it was not surprising those advising investors were being cautious about the industry, especially given the “significant pressures” it is facing.

“The hotels industry continues to be taken for granted at all levels of government,” Mr Horne said.

“Hotels in the city face uncertain futures with planned hikes in liquor licensing fees, regular changes to fees and rules around outdoor dining, as well as a lack of reform in the gaming sector all adding to pressures already being felt through issues around leasing and rising power prices.

“Unless real action is taken, the industry will continue to decline.”