Pub boom defies cooling economy as magnates square off for top properties

Big buyers are backing the industry to perform even if the economy slows.

The once humble Australian pub has emerged near the top of the investment tree, with a series of big deals across the nation showing the sector won’t lose its shine even as the economy cools.

One the most striking signs of confidence in the industry is the Thomas family putting The Oaks hotel on Sydney’s north shore on the block.

The asking price? More than $175m through agency JLL – and the smart money is betting that the long-time owners will get their price. Not that it will be entirely straightforward in this environment of rising interest rates and a looming hangover as spending tightens.

But pubs appear to be one sector which are capturing the post coronavirus crisis recovery and running with it. They have been bolstered by rising commercial property values and a recognition that their income streams will hold up – and recover – even during tough times.

The yields on pub transactions – a measure of value – have continued to compress as both the wealthy families, which already have a strong foothold in the sector, and institutions, forge into the market.

The Oaks is tipped to draw buyers ranging from entertainment tsar Justin Hemmes to pub king Arthur Laundy.

And the big transactions are still happening. Just this week in one of the largest ever deals in regional NSW Harvest Hotels swooped on the Windsor Castle Hotel in East Maitland for $51m.

Harvest has been capitalising on the rise of regional areas and already owns pubs in Albury, Wagga Wagga, Dubbo, The latest deal was negotiated by JLL’s Ben McDonald and Kate MacDonald.

Mr McDonald said the transaction highlights the market’s willingness to pursue assets underpinned by robust trading fundamentals in key growth locations.

The regional action is continuing. On Friday, a Maitland based publican, who recently bought the Manning River Hotel in Taree and Thomas Blamey Tavern in Wagga Wagga, added the Tourist Hotel in Queanbeyan to his stable

Agents HTL’s Blake Edwards and Dan Dragicevich said buyer activity remains strong for premium assets. “Buoyancy, positivity and very deliberate activity by industry paragons remains a strong feature of the national hotel market landscape,” Mr Dragicevich said.

And city markets have also been active. The leasehold of the Glenquarie Tavern in the Sydney suburb of Macquarie Fields sold for a record $28m, via JLL.

Big institutions are also paying up for pub leaseholds. This week, the KKR-backed Australian Venue Co snapped up eight venues in Melbourne, including St Kilda icon The Espy, for about $100m.

The deal had been thrown off course by the coronavirus pandemic but as soon as conditions lined up again the capital was ready to move.

Australian Venue Co has won control of the Espy leasehold as part of an acquisition agreement to buy the eight venues in Melbourne from the private Sand Hill Road.

But the outlook is not all clear skies. The listed Endeavour Group, whose major shareholders include pokies and pubs magnate Bruce Mathieson at 15 per cent, was downgraded by UBS analyst Shaun Cousins this week after its strong share price performance since its demerger from Woolworths.

“The cost of living is rising and is expected to weigh on hotels as reopening upside is slowed, while the resulting channel shift favouring retail is expected to be somewhat moderated due to market share losses and an ease in the pace of premiumisation,” he said.

In the hotel unit he said gaming was expected to endure lower rates of growth as disposable income growth rates fall.