Changes in financing for these assets however saw a significant change in demand with buyers pivoting to other assets which allowed for greater borrowing such as childcare. During our period of low interest rates we saw a resurgence in activity for service stations with buyers looking not only for their current, stable income but potential for land banking and future redevelopment.
One of the stumbling blocks for investors has been uncertainty surrounding the future of the asset class given Australia’s commitment to zero emissions in 2050. Despite this target, Australia has not set robust objectives surrounding the use of petrol cars like other nations. While EVs have grown in popularity particularly given the rapid rise in fuel costs, the continued development of new petrol stations have given confidence to the longevity of the asset class.
Over the last few years we saw turnover levels show some volatility dependent upon volume of larger portfolio sales, however activity peaked in 2022 where volumes eclipsed $1billion for the first time. This high rate attributed to not only the growth in sales numbers but also the rapid escalation in values as yield ranges fell to as low as 3.9 per cent with a 5.9 per cent annual average. In 2023 however, in line with broader commercial property trends, volumes reduced by 45.6 per cent, furthermore the first few months of 2024 had only recorded a handful of sales totaling approximately $40 million.
This reduction in sales activity has been heavily influenced by changing availability and cost of finance more so than a turnaround in sentiment towards the actual asset class dominated by private investors, syndicates and developers. Buyers however have been far more discerning than ever before, seeking out high performing establishments with a long term view on food, entertainment and charging offerings; the secret sauce for service station longevity.
Buyers have been more considered regarding local competition, future supply, land banking or development opportunities in the medium to longer term putting upward pressure on yields for more secondary locations or assets, a trend expected to continue this year. However, the expectation of interest rate reductions this year is anticipated to spur on activity for prime service station assets keeping yields competitive and new supply projects continuing. These new projects with a strong commitment to catering for EV customers, fast and ultrafast charging facilities, improved in store experiences or multiple onsite offerings including entertainment revolutionising what a service station will be into the future. Across Australia, the number of charging locations have grown by 75 per cent in 2023 with growing needs ensuring this rate of increase is set to continue, offering service station owners another income stream.
While Australia is home to approximately 21 million privately owned vehicles, the need for fuel will not dissipate and service stations will remain a major need in our communities. State policy surrounding the use of EV vehicles, subsidies and discounts have done much to stimulate investment into these vehicles with 8.5 per cent of new sales in 2023 representing battery electric vehicles and plug-in hybrid electric vehicles, a huge uptick on previous years. Its estimated 180,000 EVs are on Australian roads with ACT leading the charge followed by NSW and Queensland, this rapid upward movement advancing the need for greater charging locations across the country with service station locations joining in the push expanding their offerings to include fast charging options. While our affinity for EVs have grown (lead by Tesla Model Y & 3), new and emerging players like BYD in Australia have cemented the long term push expected by these vehicles across the world. While it's anticipated that it will take more than 30 years for EVs to be the dominant vehicle on our roads, the requirement for service stations in their current form will not go away; giving confidence to existing investors and those seeking out service station investment.
