Want to buy a regional pub? This is what you need to know

Then it didn’t. As borrowing costs soared and consumer spending sank, the previous owner, who paid $1.932 million for the pub in August 2021 and then undertook a $1 million-plus renovation, couldn’t keep going. The venue came back to the market last year under a mortgagee-in-possession sale.

Now, the latest investors buying into the national dream of owning a pub are preparing their 2323-square-metre site to tap a turnaround in spending and regional tourism they say is poised to hit the Daylesford region.

But with times still tight, and the cost-of-living crisis biting, pub operations have to focus on drawing on a local market. The previous owner turned the 1869 hotel into a beer barn targeting a young crowd – to their detriment, Mr Elly said.

“They were budgeting on a high turnover per head, and it just wasn’t there,” he said. “They read it completely wrong.”

When the Savoia opens in mid-January it will have a different feel, Mr Elly said.

“They had all timber floors. We’re putting in rugs and soft furnishings. They had big screen TVs everywhere. They were pitching to pull customers in with sport, whereas it should have been using the attributes of the hotel, like the fireplaces. A big barny place isn’t really going to work if it hasn’t got a warm feeling about it.”

But not everything is selling. In Blampied, just 15 kilometres away, the tourism-dependent Swiss Mountain Hotel, another historic hotel dating from 1864 and previously owned by late local restaurateur Jim Frangos, remains on sale after more than a year, with an asking price that has fallen from the $2 million-$3 million range to $1.85 million.

Sales agent John Castran said the venue relied on tourist traffic to the Daylesford region, had a smaller local market and was a harder sell in the current environment.

“Hospitality’s a tough gig at the moment,” Mr Castran said. “It’s back to parochial markets again now.”

In NSW, local markets are also drawing pub investors. In November last year, Richard Gillis paid $550,000 for the 7256-square-metre Central Hotel site in Moss Vale in the Southern Highlands. The investor – who is also developing the Black Rock Motor Resort outside Newcastle – said he picked up the Moss Vale site for less than land value.

It had been deserted for eight years after a bid to rezone the site for a Woolworths got knocked back by the local council.

The property across three lots on Argyle Street, with a derelict pub and adjoining retail buildings, had devalued over the decades, selling for $1.3 million in 2001, $1 million in 2007 and then $770,000 in April 2013.

It’s a major investment – Mr Gillis’ colleague Chris Orford, who is overseeing the project, declined to say how much – and an operating pub is still 18 months away. But they have signed up a creative arts studio, a butcher, a Japanese restaurant and a cafe as retail tenants.

They hope to have a beer garden behind the pub and retail buildings open in early February to tap an increasingly lucrative local market, Mr Orford said.

“I grew up in the Southern Highlands, left for 30 years and came back recently,” he said. “Mossy was always very working class, an arse-hanging-out-of-jeans type of suburb and it’s changed a lot. It’s a sexier place to be than when I was a kid.”

There are signs that prices of regional pubs are strengthening. In NSW, where the volume of pub sales is up to five times that of other states, regional pubs traded at less of a discount this calendar year than in past years, said Andrew Jolliffe from broker HTL Property.

“Notwithstanding the typical discount envisaged between regional and metro assets, the differential between 20 per cent of the key regional sales this year was at a much slighter discount, suggesting to us that regional sales remain highly sought-after,” Mr Jolliffe said.

Other real estate agents also expect a pick-up.

“We’ve been in a downturn for 2½ years since April 2022,” said Ray White Bowral agent Gene Fairbanks. “There is value here now, no doubt about it. There will be a swing back at some point.”

In March last year, Byram Johnston, the former CEO of ASX-listed funds administrator Mainstream Group, and his wife Deborah bought the O’Connell Hotel on a 3.17-hectare land holding near Bathurst for about $4 million.

“The pub was closed, we did a good deal on the real estate and paid nothing for the business,” Mr Johnston said. “We opened up and after 12-18 months, if we put it on the market now we’d probably be looking at three to four [times what we paid] on the real estate.”

Mr Johnston, who with his wife now owns three pubs in regional NSW, said the most successful were those within two or three hours of a large centre – making them close enough for day trippers. But the key to making a regional pub work was to ensure solid demand from the local community, rather than rely on tourists.

“The volume is up on year-on-year and that’s a reflection of the community spending,” he said.

“One of the things you are finding is, out in those country areas and prosperous areas like Bathurst, there are some incredible small businesses – trucking, plumbing, contracting, electrical – where those guys are actually doing well. They’ve got 50-60 employees. Unemployment is not high.”

Mr Hocking, a former Melbourne real estate agent and partner with Mr Bartolo and Mr Elly in the Savoia Hotel, agreed that the local market had to be the focus in a town known for its natural hot springs.

But there was another, longer-term attraction that would grow as the market picked up again.

“The real estate was one of the major drivers of our investment decision, because of the land component which was undeveloped at the rear,” Mr Hocking said.