Continued thirst for pubs, particularly in regional Australia where demand has increased by 135%, has pushed yields down further, according to Real Capital Analytics.

Benjamin Martin-Henry, RCA’s head of analytics, pacific said despite rolling lockdowns across much of Australia over the last 18 months, property investors have shown a remarkable interest in acquiring pubs, with transaction volume on course to eclipse previous highs.

“Investors don’t appear to have been completely put off by the numerous lockdowns Melbourne has undergone and the one Sydney is currently experiencing,” he said.

In 2020, sales volume for pubs declined 22% compared to 2019 which, compared to drops of 50% and 43% for the hotel and retail sectors respectively, shows substantial resilience.

“Moreover, considering that this alternative investment segment relies on in-person patronage, the relative strength is surprising.

“Equally surprising is the performance of the sector to date in 2021. Investor acquisitions through late September reached A$1.10 billion (US$0.8 billion), a hair off the record full-year hauls of A$1.16 billion in both 2017 and 2019,”

Martin-Henry said 2021 is on track to be a record year after the Charter Hall Long WALE REIT and Host Plus made a takeover bid for ALE Property Group.

RCA also observed that deal activity in regional areas that has seen the most substantial growth compared to previous years.

Recent deals include the Lake Illawarra Hotel in Windang exchanging hands after 36 years; the Grand Hotel Cairns; the 170-year-old 1851-built Imperial Hotel in Maitland; the Tattersalls Hotel in Casino; and Moree’s Royal Hotel.

Martin-Henry said so far in 2021, acquisition volume in regional areas has increased 135% on the 2017-19 average and regional areas have accounted for just under half of national transaction volume, compared with 20% in the years pre-Covid.

“One likely reason for this growth is that regional areas have fared significantly better in the Covid era, with extended lockdowns mainly confined to metropolitan locales.

“This, coupled with the regional population growth as people leave capital cities in droves, has given pub investors added impetus to seek out assets beyond metro boundaries. Merivale, for example, picked up The Quarterdeck in Narooma on the south coast of NSW, and Laundy Hotels acquired Springdale Heights Tavern in Albury NSW,” he continued.

Martin-Henry recently told Australian Property Journal’s Talking Property Podcast that pubs are far and away performing better than any other sector, including industrial.

Hotel brokers HTL Property’s managing director Andrew Joliffe said the lower price point for regional pubs at a circa $10m mean, serves to avail itself to new and emerging players.

“Historically, demand for regional assets has not been at the same level as that of its Metropolitan counterpart; however a definitive trend has emerged, propelled by experienced pub investors highlighting the long-term confidence in our regional markets.

“Considering the 12-week period during Sydney’s lockdown from 26 June 2021, we have recorded $359.3million in pub sales across 36 transactions. Of note has been the perseverance of strong activity within Regional locations, representing 16 of these sales and with an average sale price of $6.16million; which illustrates the long-term confidence for this growing segment of the market,”

Joliffe this has placed further downward pressure on already contracted yields.

The RCA Hedonic Series, which controls for quality and locational differences in the underlying sample, shows yields have compressed by 50 basis points since Q1 2020 to reach 5.3% nationally.

Martin-Henry said pub investors may be banking on the much-vaunted idea of “revenge spending” as those cooped up for extended periods eagerly await the chance to spread their wings and experience a taste of what life used to be before Covid.

“If this idea does come to pass, it may further affect prices in the pub sector and the potential entrance of new players to this market,” he concluded.

Dan Dragicevich, HTL Property national director, said with interest rates remaining low for the foreseeable future and the weight of funds already in and on the periphery of the marketplace looking to be invested high; the pub sector will continue to flourish.

“The patent attractiveness of regional pub assets for both new buyers looking to enter at a lower price point; and those experienced hoteliers looking to expand their portfolios.

“Quality assets in both metropolitan and coastal locations will also remain in heightened demand, with increased competition compressing yields to benchmark lows in the short to medium term.” Dragicevich said.