House prices are falling but investors’ thirst for pubs and the liquid returns they offer are still growing. This observation comes as $140 million worth of pub assets changed hands over the past two weeks in Sydney.

In fact, in all our capital cities, smart investors are seeing the potential in pub assets as changing community attitudes toward hotels and new social trends make them assets with real potential.

But can it last? And what might hit this uptrend for hotel valuations? The answers have wider implications on all Australians.

Justin Hemmes in Sydney has led a charge into pubs and restaurants redefining how these businesses interact with their customer base, and his success and others like him have rival hospitality players bidding hard for these often underdeveloped businesses that have been run by individuals, who have lacked capital and probably the business acumen to really turn these pubs into money-making machines.

But that’s changing as the SMH’s Carolyn Cummins reports. “Pub deals continue to defy the sluggish sentiment of the general economy with up to $140 million worth of asset changing hands in only two weeks, at what agents say have been record prices,” she wrote. “The latest is the stately Tudor Hotel at 90 Pitt Street, Redfern, snapped up by the privately run Universal Hotel chain for a suggested price of around $17 million. It is a record price for the inner-city suburb.”

The magnitude of pub sales is staggering but it tells you where we’re heading with what we do socially.

“Despite lockdowns, rising costs of supplies and interest rates, the pub sector has been the busiest of the commercial real estate sectors during the past two years,” Cummins reports. “The deals have amounted to about $4 billion, with long-time intergenerational families deciding to sell to new and existing operators and investors.”

HTL Property managing director, Andrew Jolliffe said the strength of the pub market in 2022 has been immense and you have to wonder why. Well, try these social developments:

• The work from home trend where more employees are in the suburbs.

• The population shift to the regions and coastal areas have increased the value of pubs in these areas.

• Pubs are more than just hang outs for drinkers — they offer other services, such as gambling, replacing TAB branches and children’s activities, and they sell coffee.

• They are competing with restaurants and cafes for the hospitality dollar.

• We are more social than ever before, especially since the implications of the two years of lockdowns.

So, what could threaten this trend to great pub traffic and rising hotel valuations?

Well, historically, pub buyers overreact to rising valuation and some get caught with assets that are difficult to sell in an economic slowdown or recession.

But the biggest threat to this activity and the success of other businesses will be the RBA and its rate rises, which won’t really have the greatest effect until mid-2023. That’s when a lot of homeowners with mortgages will shift from 2% and 3% fixed home loans to variable rate loans in the 5% region.

That’s going to hit a lot of discretionary spending and retailers and hospitality suppliers could see reduced spending, as unemployment rises.

Dr Phil Lowe is doing a speech and every word he utters will be poured over by the media, financial market analysts, economists and business owners, like pub owners, trying to work out if they’ve paid too much for their newly-acquired assets.

I think stocks will have a good year in 2023 but some companies will be better buys than others as the RBA’s rate rises bite the real economy.