Why you should consider a hospitality venue as your next commercial property investment

There is no denying that Melburnians take their food, drinks and coffee culture extremely seriously. And it is this passion which has underpinned the hospitality sector’s dramatic resurgence since the easing of lockdown restrictions across Victoria.

In recent months, our experienced sales team has managed several hospitality venue transactions as the asset class continues to be a frontrunner for investors looking to diversify their commercial property portfolios. 

Keep reading to learn more about our market observations, investment considerations and our recent deals in the Victorian hospitality vertical.

Why are cafés and hospitality venues good property investments?

There are a number of contributing factors that position cafés, restaurants and bars favourably in the eyes of investors.

Perhaps the most appealing feature of the hospitality asset class is its medium to long-term lease structures. A leasing agreement generally starts with a minimum 5 year term and has fixed annual rental increases of around 3 per cent – providing more financial performance and security than a residential investment.

Generally speaking, well-positioned venues in established residential and retail areas experience a high volume of daily foot traffic. So, whether someone is looking to grab a quick takeaway coffee, sit down for a delicious brekky, or get stuck into a long lunch, this steady stream of customers usually translates into a stable source of income.

In turn, this income stream underpins the commercial sustainability of the business, supporting tenant longevity that will help ensure your property is occupied consistently under your ownership.

What to consider when investing in a hospitality business

One of the most important considerations when investing in hospitality sector is understanding what your capital requirements are to finance the venture. 

If you plan to borrow, then its crucial to plan for widely anticipated raises to interest rates over the next 12-24 months which could impact returns.

Doing your due diligence on your tenant and cultivating a deep understanding of their approach to customer service and operations more broadly is another key consideration for hospitality landholding investment. 

Ultimately, your tenant will be the face of your investment, so before inking a deal, we suggest meeting with their company directors with a view to establishing a positive relationship and clear communications process that will support a fruitful joint venture.

Recent Jones Real Estate deals in the space

Over the past eight weeks, our sales team has transacted on a flurry of café and restaurant deals in some of Melbourne’s fastest growing residential and metropolitan areas.

This includes the $1.33 million sale of Only Hospitality Group’s ‘Hamlet’ café at 47 Marianne Way, Mount Waverley to a Melbourne-based private investor. This tenanted café deal was secured with an initial ten-year lease returning $75,000 per annum with fixed annual rate increases of three per cent.

The ‘Eastwood’ café sale at 1 Robinlee Avenue, Burwood East, was another recent listing we represented on for Only Hospitality Group. As part of this campaign, we secured a strong $1.421 million result at auction. This investment was secured returning $78,000 per annum on a medium-term lease ending in 2032.

Leasing activity for hospitality venues has remained robust recently too. In December, we facilitated the leasing campaign for Australia’s first pizzeria – Toto’s Pizza House on Lygon Street, Carlton. 

This prime positioned restaurant delivers a commencing rental of $140,000 per annum with the tenant “Oporto” signing on for 10 years, adding to the eclectic flavours of the iconic Melbourne dining and retail strip.

If you are keen to learn more about the Victorian hospitality investment markets, discuss an investment/sales opportunity, or speak to our experienced sales team about a separate commercial property matter, please reach out to us at info@jonesre.com.au