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Commercial service station sector still growing despite EV push

Growth in investment in commercial service stations was elevated in 2021, despite government attempts to encourage electric vehicles (EV).

The latest data from the Electric Vehicle Council shows Australians tripled their investment into low emission vehicles in 2021, including electric vehicles, however, investment in service stations remains robust.

Ray White Commercial Head of Research Vanessa Rader said the traditional way service stations have operated is continuing to evolve in light of EV.

“Service station new development has been high over the past 10 years. Over this time we have seen an evolution of their offering, with a greater focus of quality food, shopping and overall comfort,” Ms Rader said.

“High coffee sales and parcel collection points has seen the average custom time increase, as operators look to expand their offering to include fast charge; with charging taking from 10 to 60 minutes, the experience at your local service station will continue to change.

“While groups such as Caltex/Ampol were first to explore this, the limited uptake by Australians has seen the rollout slow.”

Ms Rader said investment in the sector continues to remain high, spurred on by low interest rates and a hunt for yield.

“Investment into service stations certainly has not slowed, with sales into these assets peaking in 2021 with close to $1 billion in volume recorded as transactions approached 300,” she said.

“The ongoing quest to source a quality ‘set and forget’ asset high over the last few years as interest rates fell which saw investment yields also contract across the country.”

Strong demand for service stations has seen yields continue to compress to record low levels, according to Ms Rader.

“While yields continue to range vastly, quality metropolitan offerings currently average 3.9 per cent yet can range from as little as 2 per cent or up to 6 per cent depending on location, quality of asset and lease covenant,” she said.

“Over the past few years, as competition grew, we saw the spread to regional assets reduce as FOMO set in and buyers moved up the risk curve. 

“However, this has dissipated as banks reduced LVR’s and more caution entered the market. 

“Regional yields can range broadly from 6 per cent to 10 per cent depending on location, tenant and lease term with some quality offerings still well below that range.”

With interest rates rising, there is now greater caution in the marketplace, according to Ms Rader.

“While sales completed this year have maintained the low yield levels of 2021, volumes are expected to fall. 

“While the threat of EV is low in the short to medium term, like other ‘set and forget’ assets, exit strategies are increasingly important for service stations, including future opportunities for hydrogen, or possible issues such as contamination must be considered.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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