Recent freehold sales in the Victorian capital signify the resurgence of activity in the market as sharp yields reflect both investor and industry interest.
The freehold interest in the Cornerstone Hotel of Port Melbourne transacted in recent weeks at a confidence-inspiring yield of 4.50 per cent.
Built 1860, the staunch two-storey Georgian brick pub reflects its current name. It has previously been known as the Fountain Inn, Sloaney Pony, and Mardo’s Hotel.
The landowner put it to market for the first time in 25 years through a four-week EOI campaign managed by JLL Hotels’ Will Connolly and Lachlan Persley, reportedly generating six serious offers to purchase.
This followed sale of the freehold of Hotel Collingwood, built in 1859, finding an equally aggressive yield of 4.63 per cent. It was snapped up by Julien Moussi’s Only Hospitality Group, which had bought the lease mid-2021, when the pub was known as the Robert Burns Hotel.
These freehold sales, both within the past month and at capitalisation rates below five per cent represent some “renewed vigour” in the metropolitan market. Stoically a sought-after asset class, fully leased hotels continue to defy market expectations.
“Transactions such as these further exemplify that our market, at least from a local perspective, is beginning to ‘turn the corner’ on a challenging period,” offers Connolly.
While the yield figures remain comparable to recent years, Connolly says this in itself is a positive indication that freeholds “appear to be maintaining a healthy yield compression, despite current economic challenges”.
The rationale behind the performance is thought to be based in the lack of supply, particularly within metropolitan Melbourne.
But also that assets marketed publicly create an “environment of competitive tension” that puts downward pressure on cap-rates, elevating sale prices.
At the other end of the industry market, and more typical of pub sales in Victoria, JLL has announced a trio of inner-city leaseholds on offer. Stepping up are the Quarry Hotel of East Brunswick, Hotel South Melbourne, which has been recently refurbished, and the popular Kent Hotel of Carlton North – available for the first time in 20 years.
Cap-rates on metro leasehold interests remain subjective, influenced greatly by the style of the venue.
However, agents advise a common thread with both F&B and gaming-oriented venues when determining value is total lease tenure, with operators often only considering opportunities within a set parameter of duration; F&B generally a minimum of 20 years, gaming pubs generally in the vicinity of 40-50 years.
“There is also a stark contrast in yield levels when comparing a pure food & beverage-orientated operation to an offering that includes gaming, with gaming assets producing tighter yields in most, if not all, circumstances,” adds Connolly.
