The Service Station asset class has seen considerable movement over the last ten years. This property type historically was not highly appealing for many investors given the uncertainty surrounding contamination and the assumption of it as a “dirty asset”.
Many service station sites were sold as excess land holdings as brands such as Mobil and Caltex consolidated their sites and many private operators were squeezed out of the industry with the emergence of players such as Coles and Woolworths. We saw the sale of many assets for development purposes, usually situated on large corner lots; these locations became attractive for medium to high rise developments depending on the cost to remidiate.
More recently (over the last five years) investors have been attracted to this asset class for a different reason. The domination of the fuel industry by a handful of players saw these assets, together with lease covenants, favour landlords in respect to remediate issues as a safe and secure long term income stream for predominately the private investor market. Stable incomes, quality well maintained assets have been a drawcard for those seeking a higher yielding investment during this prolonged period of low interest rates. As a result, strong yield compression has been felt across both regional and metropolitan areas as purchasers compete to secure this limited pool of assets as alternative investments in a similar price range move further out of reach due to similar yield tightening.