PROPERTY FOCUS: The lure of the south

The lure of the south

The pub property market has been heating up in South Australia, with national, interstate, and local groups getting in on the action.

THE SOUTH Australian pub market is seeing an uptick in activity, with national and interstate groups increasing their footprints in the state. Not to be left out, South Australia-based operators are also expanding their local presence.

Duxton Pubs, the hotel investment fund created by prominent South Australian publicans Ed Peter, Brett Matthews and Martin Palmer in 2020, has undergone incredible growth in the past two years. The group’s rapidly growing SA portfolio includes the Saracens Head in the Adelaide CBD and The Lion Hotel in North Adelaide, and most recently Port Broughton Hotel – bringing its portfolio to 12 venues.

Interstate hotel groups making a strong entrance into South Australia include Victorian-based Black Rhino Group which last year added four South Australian hotels to its portfolio, with another seven expected this year. Director David Tomsic is predicting massive growth in South Australia over the next five years.

The national groups are also making moves down south. Late last year, Australian Venue Co. (AVC) announced plans to purchase the Saturno Group’seight pubs and four bottle shops in and around Adelaide, bringing AVC’s South Australian portfolio to 18 venues.

“We see a lot of potential in the South Australian market,” AVC CEO Paul Waterson said at the time. “We’ve been operating in SA with a local team on the ground for over two years and will continue to invest in the State.”

Endeavour Group, meanwhile, made two South Australian acquisitions in as many weeks in February – the Grand Tasman Hotel in Port Lincoln, and the Empire Hotel in Kilburn.

JLL Hotels, which managed the Empire Hotel sale, says the sales campaign saw bids not only from local publicans but also multiple interstate hotel groups seeking a first asset in the growing Adelaide hotel market.

“What was telling in this sale campaign was the balanced level of interest we received from both SA-based operators and interstate operators who each competed hard for the asset,” JLL Hotels vice president Will Connolly says.

Endeavour Group recently acquired the Empire Hotel in Kilburn

“This is yet another example of the South Australian market now being targeted by a more national spread of capital. Our team can see this having a significantly positive effect on values going forward for the SA pub market.

“Interestingly, our NSW team are also now being sought out by operators within their state to help them explore SA hotel opportunities as they see a lower ‘barrier to entry’ to secure assets, as they look outside of a notoriously competitive NSW market.”

So, what’s behind all of this interest? Connolly says real value has been identified in the South Australian Hotel market due to recent gaming legislative changes such as the introduction of notetakers, along with a stable, less COVID-interrupted trading environment.

“These factors really have drawn theattention of interstate capital that inturn has created a super competitive SAmarket,” he says.

Another factor that has attractedhotel groups from other states in recenttimes, Connolly says, has been the“quantum of dollar in which an SA pubcan be secured for”.

“Our team are seeing daily theastronomical level of value in which a pubasset can be traded for in both Victoriaand NSW.

“Operators from these states are nowidentifying that South Australian pubvalues, whilst certainly not insignificant, aremore attainable and have therefore begunto look to the SA market with interest.”

An interstate perspective

Black Rhino’s Tomsic says the South Australian market is rising in popularity in line with Covid-inspired migration trends which have seen a move away from major cities in favour of lifestylefriendly locations.

“With the advancement in technology, people don’t have to travel long distances to work and are seeking to move to regional areas. We’re taking a long-term view, but we want to be part of it.

Barmera Hotel was acquired by Black Rhino.

“More people are moving to both metro and regional SA and we want to give people another reason to do so by creating the best offer we can.”

Black Rhino seeks specific attributes in its South Australian acquisitions, Tomsic says. “As we have in Victoria, we have

targeted areas where the hotels are ingrained into the local communities as well as others in metropolitan areas that need some updating.

“Hotel values have already significantly risen since we entered the market last year. The secret is out.”

South Australian communities, particularly in regional areas, have been welcoming toward the interstate group, according to Tomsic.

“Being Victorian-based, we were blown away with how excited and helpful the locals have been. “Outgoing hotel owners were clearly invested in their respective hotels for the right reasons and cared deeply for the community. They have all been very good to deal with in the transitionary periods to ensure we can carry that legacy on.”

A local perspective

Operator Matthews Hospitality is one of the well-known SA-based family pub groups. When it comes to portfolio growth, the group intends to continue its focus on its home state, according to its CEO Andrew Kemp.

Last month, Matthews purchased The Bentleys Hotel, a food, beverage, and accommodationfocused venue in the Clare Valley. Matthews plans to improve the accommodation offering and function packages and create tourism experiences in the renowned wine region.

A change in habits, such as moving away from hubs and offices and working remotely means the ability of a local pub to attract a local base and be well entrenched in the community is stronger than ever.

Kemp attributes the growing interest in South Australian pub property to general economic growth, low interest rates, comparatively low property prices, and people returning to South Australia from larger cities in other states.

“A change in habits, such as moving away from hubs and offices and working remotely means the ability of a local pub to attract a local base and be well entrenched in the community is stronger than ever.

“And although the metro or suburban hotels are being purchased at higher dollar figures, the regional properties are still comparably cheap. Also, banks and lenders are viewing hotels as good solid security as well, so there’s an appetite for lending.”

The Bentleys Hotel - Matthews’ Katy Sargent and Gary McCulloch.

Kemp also notes that recent gaming regulation changes meant that South Australian gaming machines are now able to accept notes, rather than just coins.

“That has triggered interstate interest from the other groups. That compatibility of legislation around gaming in South Australia probably helps the confidence level.”

Despite the rush of new entrants, Kemp says local families and groups will continue to do what they do well, focusing on their own areas of specialisation.

“We do things differently to each other so there’s room for all of us to operate without cannibalising each other.”