12/03/2008 - 22:00

Pub owners to hold stock

12/03/2008 - 22:00

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Western Australia’s pubs market is expected to perform strongly in the medium term, although fewer sales are expected in 2008 as owners hold on to valuable stock, according to a report from CB Richard Ellis.

Pub owners to hold stock

Western Australia’s pubs market is expected to perform strongly in the medium term, although fewer sales are expected in 2008 as owners hold on to valuable stock, according to a report from CB Richard Ellis.

About $252 million worth of sales were achieved last year, the bulk of which comprised a $190 million buying spree by Sydneybased Compass Hotel Group Ltd.

This was up from $113 million posted in 2006.

CB Richard Ellis hotels senior director David Kennedy said rising interest rates had made it unlikely that comparable prices would be achieved this year.

“I think the market will slow in 2008.

Purchasers will be more discerning and sellers will still be expecting 2007 values in a lot of instances.

It will be an adjustment for everyone,” Mr Kennedy said.

He said freehold investment yields were expected to fall from the average range of between 7 per cent and 8 per cent, measured in December last year.

Yields for going concern interests in regional pubs were significantly higher at the end of the year, ranging from 17 per cent to 30 per cent, while regional freehold pubs posted yields of between 9 per cent and 12 per cent.

Mr Kennedy said yields would need to increase if sales activity was to continue.

“Good cash flow properties will be in demand, and hotels are generally good cash flow properties, but the yields will have to increase because the banks’ lending rates have increased,” he said.

“Sales will be prompted by genuine buyers who accept market conditions, or are forced to accept market conditions.

In the majority of cases, where it is not a stressed sale, sellers will be asking more than buyers are prepared to pay.” Mr Kennedy said that with stock being difficult to find, development activity was expected to increase.

He said a number of new developments were proceeding in greater Perth, including a 5,000 square metre site in Currumbine, as well as two other sites in Ellenbrook and Kewdale.

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