Investing in Pubs
While the idea of owning your own pub will appeal to many, there is more than just pulling beers involved. In this guide we dive into the fundumentals of investing in pubs.
There are roughly 7,350 pubs in Australia and 2,097 in NSW (28% of total). The industry is highly fragmented with the largest players being Wesfarmers with 91 (1.2% market share) and Charter Hall with 328 (4.5% market share).
Pubs generally derive their income from a mix of gaming, food and bar, and off premise retail liquor. Gaming is offered by way of Electronic Gaming Machines (EGM’s).
Pubs in New South Wales derive a significantly larger proportion of their turnover from Electronic Gaming Machines (EGM’s). There are roughly 71,000 EGM’s in NSW Pubs, which is about half of all EGM’s in Australia.
Gaming and Pubs
Gambling expenditure continues to grow nationally. In New South Wales, EGM’s are the largest segment representing 75% of gaming expenditure. Growth in EGM’s expenditure has grown in line with broader gaming expenditure, although underperformed during the introduction of smoking laws within pubs in 2008-09.
Gaming Machine Entitlements and Poker Machine Permits are issued by the NSW State Government, who walk a tightrope of being responsible to the community by restricting EGM licences, while still being conscious of how critical EGM taxes are to their budget.
Over time, the NSW State Government have introduced various systems to control the number of gaming machines in any locality.
However, NSW Budget forecasts estimate continued growth in EGM revenue and taxes.
Alcohol consumption remains flat and is falling on a per/capita basis. Although pricing has increased in recent years with a switch to more boutique style beer.
Since June 2007 it has been illegal to smoke in an enclosed area within a pub in NSW. After an initial negative impact to performance, most pub operators have adopted a partially enclosed area which gaming and smoking can be undertaken.
After a period of contracting cap rates, we are now starting to see a divergence between metropolitan and country values.
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For more information on commercial property in general, read our article Investing in Commercial Property – The Ultimate Guide.