Retail property investors are increasingly looking to Australia’s service stations as changing consumer patterns solidify the asset class’s appeal.
While the service station sector is traditionally dominated by private investors, a wider range of investors such as self-managed super funds, some offshore investors and newly formed Real Estate Investment Trusts (REITs) are all becoming increasingly active, according to Stuart Taylor from JLL’s Retail Investments team in Australia.
The benefits of service station assets include long initial leases, high quality lease covenants and high fixed annual rental increases.
And, changing consumer behaviours – such as an increase in new car sales and ongoing reliance on fuel consumption are cementing the appeal. Approximately 1.9 million new cars were sold each year between 2009 and 2016 across Australia, with the country’s preference for fuel-powered vehicles showing little sign of let-up. Electric and plug-in hybrid models accounted for less than one percent of new car sales in 2016.
But, as the world moves to renewable energy, Australia is unlikely to escape the move towards electric, and few will be more impacted than the petrol station asset class – forcing landowners to diversify.
The make-up of a typical service station has changed dramatically over the past decade – moving away from the reliance of the fuel pump as the main revenue generator. Many service stations now include a small convenience store, quasi-supermarket or coffee shop.
This is has created new opportunities for the sector within the retail space, explains Andrew Quillfeldt, JLL’s Head of Retail Research for Australia. “Australia’s expanding capital cities and increasingly connected road networks will support the long-term demand for service stations,” he said.
While the interest from retail property investors in Service Stations is somewhat recent, the asset class has steadily grown in popularity across the board. In fact, sale transaction volumes peaked in 2016 with 50 sales totaling over AU$400 million across Australia’s eastern seaboard, according to data from JLL.
While NSW and Victoria saw the most transactions, price growth has been strongest in Queensland, with sales rates per square metre doubling over the last three years – increasing from $1,100 in 2014 to $2,210 in 2017. The story is the same nationwide with sales rates per square metre increasing steadily since 2011.
But, with these sales has come a rapid reduction in supply as more investors look to buy with a view to converting the sites. Improvements in technology and better regulation have reduced soil contamination, making it easier and safer for the sites to be repurposed.
According to the Australian Competition and Consumer Commission (ACCC), the number of sites across Australia dropped from 20,000 in 1970 to just 6350 in 2014.
Whether buying to extend a retail presence, or to repurpose the land other commercial use, the appeal of the service station is unlikely to waver, with Taylor describing it as a “defensive asset class with long term appeal for investors.”
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