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Pandemic Pumps Up Service Station Asset Class

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With long leases to national tenants and greater exposure to domestic travel due to the pandemic, service stations remain well-placed to outperform all other asset classes.

According to national valuation firm M3 Property, south-east Queensland has become a battleground for investors looking to bed down cash in the fuel economy, despite fuel retailing revenue dropping substantially during the financial year due.

New supply across the region has slowed over the past 12 months with most new service stations delivered in Brisbane, Moreton and the Gold Coast.

Since January 2017, 115 new service stations have been developed across south east Queensland with 37 completed or currently under construction across 2020.

“We are starting to see a stronger focus on regional service station development, given the increasing saturation of the metro market and southern operators such as Metro, Westside and United,” M3 Property Queensland managing director Ross Perkins said.

“We estimate there to be a pipeline of circa 80 service stations proposed for development across south east Queensland with approximately two thirds of proposed service stations approved.”

Perkins will be joining The Urban Developer alternative real estate vSummit on Thursday, 12 November on a panel dedicated to service station real estate.

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▲ It is estimated that there are 6,539 service stations across Australia, of which approximately 1,450 are located in Queensland.
▲ It is estimated that there are 6,539 service stations across Australia, of which approximately 1,450 are located in Queensland.


Across the year, yields have remained stable, averaging 6.31 per cent across Queensland and 6.11 per cent within South East Queensland.

Earlier this year, Caltex in Brisbane’s north west suburb of Hendra sold for $10.5 million on a yield of 6.1 per cent, meanwhile two 7-Elevens, one in Nambour and another in Doolandella, transacted for $3.8 million and $8.7 million on yields of 6.1 per cent and 6 per cent respectively.

“We have seen no sign of yield softening as a result of Covid-19 to date, instead, we have seen some signs of sharpening,” Perkins said.

“Despite travel restrictions and border closures reduced cash flow in the early stages of the pandemic, the low interest rate environment and appetite for long-WALE is expected to see yields tighten in the longer term.”

During the year ending June 2020, m3property found the average net rental rate was $40,695 per vehicle bay station leases across south east Queensland with the average initial lease term sitting at 12.5 years.

Newly-constructed service stations were found to receive a premium over established serviced stations due to developers increasing fuel canopy sizes and the inclusion of cafes and food and dining precincts within newly-established facilities.

The pandemic has also increased the popularity of drive-through fast food, which increases turn-in traffic for multi-tenanted assets.

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▲ According to IBISWorld, the industry is estimated to have brought in a total revenue of $31.4 billion nationally during the financial year.
▲ According to IBISWorld, the industry is estimated to have brought in a total revenue of $31.4 billion nationally during the financial year.


“Single-tenanted properties typically transact at sharper yields than multi- tenanted assets due to their decreased vacancy and management risks,” Perkins said.

“We have witnessed an increase in multi-tenanted sales over the past 18 months as development of these assets has increased.”

With the re-commencement of intrastate travel and borders starting to re-open, petrol stations are now well-placed to benefit from increased domestic travel while international borders remain closed.

“[Looking ahead] the service station sector is expected to continue to evolve,” Perkins said.

“Service stations are likely to be increasingly positioned as convenience hubs in strategic locations as growth in electric vehicle consumption continues.

“As electric vehicle usage increases, fuel storage and environmental risk will decrease.”

Across the year larger portfolio transactions have continued to flow with a number of high-profile deals.

In September, APN Convenience Retail REIT added to its $450 million petrol station portfolio, picking up three petrol stations across Queensland for $27.5 million.

Meanwhile earlier in the year, Charter Hall in partnership with GIC, secured a $682 million half-stake in 203 freehold Ampol petrol stations through an unlisted property trust.

Perkins will join other panellists, CBRE metropolitan investments associate director Darren Collins and Michael Hobday, 7-Eleven head of assets, construction and environmental, at The Urban Developer alternative real estate vSummit on Thursday.


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Article originally posted at: https://theurbandeveloper.com/articles/service-station-asset-class-m3property