In 2022 we saw Australian commercial sales transaction levels decline as interest rates increased, seeing a number of buyers exit the marketplace. As a result, there has been some revision in yields given this growing cost to finance as well as limited rental growth expectations across most commercial asset classes. While volumes have been recorded down for major asset types such as office, retail, industrial, and even development sites, there have been some categories which continue to grow in attractiveness including service stations.
There has been an increased appetite for service station assets since 2011. Since this time we have seen regular portfolios of tenanted assets come to the market generating interest, predominantly from the private investor market, continuing to set new record lows in investment yields. These assets were typically considered attractive given their long, secure leases, often to multinational groups, making them the ultimate “set and forget” asset. Their main road and corner locations, which make their development potential high (after remediation, creates possible exit strategies for owners.
Over the last few years, these assets have evolved to include greater food and convenience offerings, growing the average custom time as the demand for electronic charging was anticipated to change the way in which service stations were interacted with. Furthermore, the rise of EVs continues to raise questions as to the longevity of the asset class all together. With 3.4 per cent of new car sales to September 2022 being EVs (or hybrid) according to the Electric Vehicle Council, this represents a 65 per cent increase on 2021 results. This highlights good growth, albeit Australia continuing to lag behind much of the world. In addition, the slow delivery of vehicles, limited fast charging facilities, and overall rising cost of energy, are yet another roadblock in the rapid rollout of these vehicles which currently only account for an estimated 0.3 per cent of the total registered vehicles on Australian roads.
With this in mind, the future for service stations continues to look secure and their stable income streams remain attractive to savvy buyers. In 2022 we recorded transactions of over $1 billion across Australia, up 52 per cent on last year’s result.There continues to be interest from experience investors, developers, and private syndicates, who are looking to take advantage of the corrections in yields, as many first time buyers who were instrumental in lowering yields over the past few years have now left the market.
Overall, 2022 yields have averaged 5.9 per cent within a broad range from as low as 3.9 per cent upwards to 10 per cent. This is an increase on 2021 results, fuelled by low interest rates, where the average sat at 4.4 per cent for metropolitan assets while regional assets averaged 5.1 per cent. This correction is likely to see the need for some owners to bring their assets to the market which will add to the portfolio transaction activity anticipated in 2023.
As for the future of the service station asset, their need will continue into the long term. While groups such as Ampol and BP start to offer fast charging stations within their establishments, this pivot is indicative of new services available to the driving community, not the demise of the service station. With the most rapid charging still taking at least half an hour, the need for comfortable and enticing food, retail and entertainment options within service stations will grow, continuing the evolution of what these assets look like. However, as petrol vehicles are expected to continue to make up the large majority of vehicles over the next few decades, service stations are here to stay and will continue to be attractive investment options for investors.
