A mainland Chinese investor has snapped up a historic inner-city Melbourne pub on a yield below 5 per cent in a deal that highlights the significant appetite among private investors for well-located metropolitan pubs, despite a recent surge in values.
Standing on a corner site across the road from the popular South Melbourne Market, the 153-year-old The George Hotel sold for $5.2 million – a 30 per cent capital gain in less than three years – on a yield of 4.86 per cent.
The pub was offloaded by the Tresise family whose Commercial Hospitality Group will continue to operate it under a lease agreement, which has just over four years to run plus renewal options.
Clinton Baxter from Savills Australia, who negotiated the sale of The George Hotel alongside colleagues Nick Peden, Jesse Radisich and Glenn Ye, said pubs selling on yields below 5 per cent were still “the exception to the rule”.
“There is strong competition for pubs in premium locations. The Chinese investor who bought The George was seeking a prime land holding that met their investment criteria,” he said.
Amid the frothy prices being paid by private investors, major pub landlords like ASX-listed ALE Property Group have steered clear from buying in the current market for over a decade.
Instead ALE has tested the appetite of buyers, putting the Berwick Inn in Melbourne’s outer south-eastern suburbs up for sale in October last year, before pulling the offering from the market in early 2018 when offers fell short of expectations.
However, ALE has benefited from the premium prices being paid in the market with average yields across its $1.1 billion portfolio of 86 metropolitan pubs leased to Woolworths-backed operator ALH dipping below 5 per cent (4.98 per cent) following June 2018 independent valuations. Five years ago the ALE portfolio traded on a yield of 6.59 per cent.
In January, Financial Review Rich Lister Arthur Laundy said now was the time to sell rather than buy pubs.”I can’t see prices going much higher. Some people are paying silly prices,” Mr Laundy said.
At the same owner-operators like the Tresise family are taking advantage of the strong investment market to sell at high prices and reinvest the money into growing their businesses.
Mr Peden said the result achieved for The George Hotel was evidence that buyers were “flocking to A-grade commercial properties and are willing to accept tight yields due to the scarcity of opportunities and the long-term growth”.
A new pub report by CBRE said Victorian buyers can expect to pay in the 4.5 per cent to 5.5 per cent yield range to secure an investment, whereas rural and regional yields were between 8 per cent and 10 per cent.
“Owners are holding tightly on to their assets and the lack of stock for sale resulted in increased competition for assets when put up for sale,” the CBRE report noted.