Hotel investment surging in regional NSW

Regional New South Wales’ pubs are fast becoming the hottest investment ticket in town with one leading investment sales specialist seeing a surge in investment in regional areas compared to last year.

Andrew Jolliffe, Managing Director of hospitality investment firm HTL Property, said there had been a substantial lift in the level of confidence across the entire hotel investment sector.

He noted Australians had recaptured their love of regional areas over the past 18 months and that had been reflected in the increase in sales of pub assets.

HTL Property figures show a stark difference in confidence in the pub investment sector following the lifting of lockdown in June last year compared to the 12-week period during Sydney’s most recent lockdown, which started on 26 June 2021.

“When considering the 12-week period immediately following the lifting of restrictions for the pub sector in 2020 (1 June) we saw some lingering hesitation remain in the marketplace,” Mr Jolliffe said in the NSW Pub Market: The Road Post Lockdown report.

“During this period, only six transactions took place, totalling $49.4 million… this included four regional assets with an average sale price of $2.54 million.”

Mr Jolliffe said that trepidation dissipated by the end of 2020 and in the first six months of 2021 there were 49 sales across the NSW pub sector worth a total of $596.5 million.

The second major NSW lockdown, starting on 26 June 2021, failed to dampen enthusiasm.

“Considering the 12-week period during Sydney’s lockdown from 26 June 2021, we have recorded $359.3 million in pub sales across 36 transactions,” Mr Jolliffe said.

“Of note has been the perseverance of strong activity in regional locations, representing 16 of these sales with an average sale price of $6.16 million.

“This illustrates the long-term confidence for this growing segment of the market.”

Mr Jolliffe noted that there had been a “definitive trend emerge, propelled by experienced pub investors highlighting the long-term confidence in regional markets”.

In particular, the lower price point properties, those valued under $10 million, have been incredibly popular with investors.

Mr Jolliffe said the major catalyst for the buoyant trading environment had been a combination of long-term confidence in the sector and competitive prices coupled with low interest rates.

“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,” Mr Jolliffe said.

“This increases the 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.”

Mr Jolliffe said, while there are still headwinds such as capacity restraints due to COVID-19 restrictions, the road ahead is much improved, with both patrons and hoteliers more than ready for widespread reopening across NSW.

International travel is due to resume in November but Mr Jolliffe said this is unlikely to dampen the improvements seen over the past 18 months in regional tourism.

He feels the industry is ready to rebound in a more sustainable manner going forward.

“Our view is this rebound is probably not going to be as pronounced as the initial rebound on 1 June 2020, but this time it is potentially a longer, more sustainable rebound in terms of confidence and revenue at the point of sale,” he said.

“We think this has all the fundamentals to be prosperous in terms of both the marketplace for transactions and for operators, to not be a short-term phenomenon.”

Mr Jolliffe said even with international travel on the agenda, regional tourism has proven to be incredibly popular. 

“We think the big question is, when international borders open, will people’s attention be diverted away from the regions where they quite clearly have been focused?

“We think these regions are well placed to enjoy greater longevity than just the lockdown period. The reconnection, that Australians have had with regional areas has been significant.”

Given that a large portion of the population movements are also heavily skewed towards tree and sea changers, with many businesses continuing to offer remote working opportunities for their staff, the outlook is strong.

Mr Jolliffe said there was also significant investment taking place in regional NSW.

“There is around $92 billion in infrastructure investment in regional NSW and that, in addition to the well-worn path to the Hunter Valley, Mudgee and Byron Bay areas, lays the foundation for greater visitation to these areas going forward.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.