Investor interest remains in quality NSW service station assets: HTW commercial

Investor interest remains in quality NSW service station assets: HTW commercial
Staff reporterDecember 7, 2020

Service station yields have continued to firm over the past five years, more particularly for national branded retailers and the sale of quality investment product, according to the June Herron Todd White (HTW) commercial report. 

The report took a look at the service station investment across the nation. 

"Second tier, independent branded service stations and regionally-based assets continue to attract investment within a softer yield range," the valuation firm said. 

The two most recent and prominent service station portfolio auctions for 7-Eleven realised an average analysed yield for the New South Wales holdings of below 4.5%.

These sales comprised a varying degree of asset quality, however all featured 12-year initial lease terms with all outgoings except land tax and management recoverable by the landlord.Each lease had fixed three per cent annual increases and four additional five-year options.

"There have been limited recent service stations sales since the COVID-19 pandemic, however we would anticipate investor interest to remain in quality service station assets despite these uncertain times," the valuation firm said. 

Investors continue to show interest in service stations with record low yields and strong levels of interest at recent portfolio auctions.

The mix of available service stations has varied from neighbourhood, national brand sites to purpose- built, multi-brand, multi-retail offerings.

The report notes the market continues to seek service stations with strong lease covenants (typically in excess of 12 years) to a quality national tenant, fixed annual increases and future development potential.

Service station ownership in New South Wales is highly concentrated within a select group of operators.The four largest providers are Ampol (formerly Caltex), BP, Shell-Coles Express and 7-Eleven.There is a higher level of independent operators in regional and coastal areas outside of Sydney.

2018 was considered the peak year for sales in this sector.A strong development pipeline for new service station sites has been underway for the past few years with a number of operators undertaking asset recycling style portfolio auction programs to release funds for these projects.

The service station market is still considered a safe bet, even with falling demand via more fuel-efficient motor vehicles, social pressure to reduce our carbon footprint and the falling world oil price, the report noted. 

Major fuel retailers are seen as able to maintain fuel and shop margins in an ever increasingly competitive market space and manage the environmental aspects of the day to day operation of the asset and the future potential redevelopment of the site.

"Risks to the retail fuel market segment are still considered long term with electric and other low-emission options within the next ten to 15 years," the valuation firm said. 

Location is a fundamental that will continue to underpin quality service station investment assets.

A recent sale is the BP service station at 133 Pittwater Road, Manly (pictured above), which was redeveloped in 2019 with new tanks, lines, canopy, convenience store, pumps and forecourt.

It has a passing net rental of $295,000 per annum plus GST.The selling agent reports that the property listing attracted more than 200 enquiries with a final sale price in early April 2020 of $7.2 million exclusive of GST.

This sale equated to an analysed yield of 4.1%.

Investor interest remains in quality NSW service station assets: HTW commercial

A BP service station at 14 Bernera Road, Prestons (pictured above) sold in April 2020 for $8 million exclusive of GST, equating to an analysed yield of 5.53%.

The site is a 3612 square metre, rectangular shaped, internal allotment with single street frontage to Bernera Road.

The property is located within an established industrial precinct of Prestons.

Improved on the site is a modern, circa 2015 built, BP service station with a sublease to Pie Face and a separate Burger Edge food and beverage outlet.

The property sold subject to an existing head lease to BP Australia until 31 December 2030 with three further five year options.

The property has an advised net income of $442,617 per annum net plus GST with annual CPI or four per cent increases.BP is responsible for all outgoings.

"It would appear that despite the COVID-19 pandemic, investments that reflect good management, strong lease covenants and future redevelopment upside are still considered attractive with no evidence to date reflecting a softening in demand in this sector," the valuation firm said. 

"As the New South Wales economy returns to something approaching business as usual in the coming months, the biggest challenge for the balance of 2020 may not be oil demand and prices, but reducing the level of unemployment in the economy." 

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