Service station assets thrive as electric car revolution stalls

THE threat that was expected to impact to the service station market because of electric vehicles has been further “put on hold” during COVID-19, resulting in demand to purchase these assets continuing to accelerate, according to Ray White Commercial’s latest Between the Lines* research.

“A substantial increase in driving holidays across all parts of NSW has grown confidence by the private investor when considering a service station investment in both metropolitan and regional locations,” said Ray White Commercial Head of Research Vanessa Rader.

“The service station market has been an active asset class with high investor interest over the last five years, notably from the private investor market, despite some uncertainty surrounding the longevity of petrol vehicles and the long-term need for these assets.

“Low interest rates and limited quality, income-producing offerings on the market has further exacerbated demand for these assets which are often secured with a large cash component given the LVRs needed to secure finance.”

“Over the last 12 months with the onset of COVID-19 putting pressure on the whole economy, we saw a shift in behaviours around vehicle usage and service stations,” said Ray White Commercial Western Sydney Director Joseph Assaf.

“In the early lockdown period of the pandemic the limited travel permissible saw a swift reduction in trade and low-priced fuel entered the market. The convenience shopping offerings were appreciated by the community with a growth in these sales across most suppliers.

“As we fast forward through 2020, the ability to again travel saw a swift increase in motor vehicle sales (albeit still 13.7 per cent down on 2019 results) as well as petrol sales, as drive holidays grew in popularity – notably across regional parts of the state.

“Unsure of the permanency of this trend to visit regional NSW, this has not dampened development activity, we have recorded 134 new projects across the state, 97 of these being for the development of new service stations – of which only 27 are in metropolitan locations.”

“Service station investments continue to be one of the most hotly contested commercial property assets in the Australian marketplace,” said Ray White Commercial Metropolitan Sydney Director Sam Hadgelias.

“Yields have continued their downward trajectory with new lows achieved across both metropolitan and regional assets. During 2018 and 2019 we saw a divergence in yield between the location of these assets as buyers considered the risks associated and amended values.

“With limited stock and low interest rates we have seen yields across all assets regardless of location contract, closing the gap between metropolitan and regional offerings. However, some caution is needed if this trend continues.”

*Ray White Commercial Between the Lines – NSW Service Station Overview – May 2021.