Why Investor Interest in Pubs and Retail is Running High

Chicken schnitzels and sofas may not have much in common, but they are among key drivers of favourable outlooks for the liquor, pub and large format retail (LFR) commercial property sectors.

After hitting new highs in the 2021-2022 financial year with buyer interest in hotel and leisure assets rising almost 25% from 2020 levels, property transactions as well as internal trade is still running strong across the sector.

Australia’s second largest hotelier, Australia Venue Co (AVC) reported up to 15% increases in revenue across its 200 hotels compared to pre-covid levels during FY 2022. Now trading and acquisitions have remained at such healthy levels that AVC is expecting to serve 2.13 million chicken schnitzels and parmigiani across its network during FY 2023 – a figure that represents about 36% more of the same meals AVC served during FY 2022.

Bidding marathons

Similarly, Australia’s largest listed hotelier and liquor retailer Endeavour Group experienced an 18.4% increase in performance across its portfolio of Dan Murphy’s and BWS retail stores and 342 ALH hotels over the previous two years – while competitor Coles Liquor reported revenue up 2.7% to $2 billion during the first half of FY 2022. Coles Liquor’s stable of brands includes First Choice Liquor Market, Vintage Cellars and Liquorland.

Continued high demand for the various freehold properties associated with these groups has been demonstrated across a number of sales this year, one of the more notable being that of The Bentley Hotel and First Choice Liquor store in Perth. The property, located 7km from the CBD, proved so desirable to prospective buyers at a Burgess Rawson auction this year that it generated an 82-bid marathon with bids coming every state in Australia as well as overseas. It sold under the hammer for $10.06 million. The Bentley Hotel was leased by AVC and Coles Group with guaranteed tenure until 2029 and two 10-year options. “The sale exemplifies the popularity of this sector with investors,” said Burgess Rawson National Partner Billy Holderhead.

Sharper yields

Another solid result was recorded last week when a Dan Murhpy’s-tenanted property located in Malvern, 8km from Melbourne’s CBD, changed hands for the first time in 100 years.

The recently refurbished store generated not only more than $200 million worth of offers over the campaign but went on to achieve the sharpest yield for a Dan Murphy’s store nationally in over five years when it sold for $21.1 million on a yield of 3.45%.

The property located bear the busy retail strip of Glenferrie Road opposite a Coles supermarket on had attracted more than 350 enquiries, Colliers’ director of retail middle markets Mike Crittenden pointing to “an incredible amount of interest” from offshore and interstate investors. Local private investors dominated by making up 82% of all enquiries. Agents attributed the asset’s popularity to its pandemic-proof nature, “undoubted” covenants, long lease tenures and attractive growth.

Decking out new homes

Sales of large format retail have been another of 2022’s commercial property success stories. A chief driver has been the flight from the cities to the regions which data shows has led to a boom in sales of furniture like sofas, fridges and other homewares as well as electrical goods as waves of fresh residents deck out and renovate their new homes. Other big winners have been stores selling auto accessories, gardening and DIY products/hardware sales.

Sales in JB Hi-Fi Limited-owned stores jumped considerably, with a 21% increase throughout the JB Hi-Fi Group and 25% rise across The Good Guys by 25%. In Bunnings outlets, sales rose 26.5% while the spike in people working from home helped push trading at Officeworks’ stores up 28.1%.

“Most retailers in the LFR sector are classed as discretionary,” Mr Holderhead said. “But covid-19 has completely tipped that on its head with record sales performance reported right across the LFR sector.”

More buying opportunities across these sector will be on offer for investors at Burgess Rawson’s upcoming auction at Crown Casino on September 14 where the agency will be looking to offload such assets as its latest LFR freehold investment – the only Autobarn on Victoria’s prestigious Mornington Peninsula. The agency will also be auctioning three premium liquor assets in September: a Dan Murphy’s in Pakenham, Victoria; a Dan Murphy’s in Sydney’s inner-city suburb of Rosebury and the Exchange Hotel leased to Australian Venue Co. in Port Melbourne.