A scarcity of opportunities and low interest rates are set to drive further compression of yields in the Australian pub sector in 2020, according to CBRE’s latest Pub Trends research.
The sector in 2019 was characterised by a slow start, due to the Financial Services Royal Commission and May’s Federal Election, before buyer confidence and spending picked up again.
The outlook remains positive entering 2020, with investors looking to capitalise on Reserve Bank interest rate reductions amid a competitive environment with limited available stock.
“The pub sector was not alone in experiencing turbulence in 2019, with the Banking Royal Commission followed by the Federal Election in the early months of the year,” Paul Fraser, CBRE National Director, Hotels, said.
“Coming out of the other side of that, sentiment and confidence in the market have been strong and the economic conditions are set to improve across 2020.
“Yields are lowering in line with interest rate reductions, so we’re seeing pent up demand and people looking for secure investment opportunities.”
Mr Fraser said stable governance and legislation in the major markets was helping the positive outlook, and that pubs remained a popular investment.
“There’s considerable global uncertainty at present, which is causing stock market volatility,” he noted.
“Well located commercial properties, including pubs, are viewed as ‘safe haven’ investments and we are seeing established and larger-scale venue operators expanding their portfolios with bolt-on acquisitions.
“We’re seeing particularly strong demand for A-grade, Freehold Going Concern pubs, which will likely result in further yield compression.”
CBRE’s Pub Trends research highlights that Australia’s eastern seaboard continues to be a key focus area for investors, with New South Wales recording the heaviest transactional rate ahead of Victoria, and south-east Queensland witnessing strong growth.
In NSW, strong demand coupled with limited transaction opportunities is forecast to continue to drive asset values, while the repeal of Sydney’s Lockout Laws is expected to boost investment in the broader hospitality sector.
“New South Wales is head and shoulders above the rest of Australia in regard to pub transactions,” Mr Fraser added.
“Demand is outweighing supply, though, so investors are having to look elsewhere, with Queensland among the beneficiaries as vendors and purchasers there become more active.
“Victoria will continue to benefit from strong demand drivers, while its stable regulations will attract investment from Tasmania and South Australia following significant gaming reforms in those states.”
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CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.