Service stations were one of the standout assets during 2022, with the threat posed by the increased uptake of electric vehicles unlikely to be a drag on their values for some time, according to one expert.
Despite a slower 2022 for most commercial property assets, Ray White Commercial’s Head of Research Vanessa Rader said the service station sector had proved resilient.with transactions up more than 50 per cent.
“In 2022 we saw Australian commercial sales transaction levels decline as interest rates increased, seeing a number of buyers exit the marketplace,” she said.
“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.”
This marked the continuation of a trend that had begun more than a decade ago, she said.
“There has been an increased appetite for service station assets since 2011,” Ms Rader said.
“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.”
Investors perceived service station assets as a secure investment given their long leases, often to multinational tenants.
“Their main road and corner locations, which make their development potential high (after remediation), creates possible exit strategies for owners,” Ms Rader added.
“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 experienced 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.”
Ms Rader said sales volumes were likely to pick up further in 2023 with a correction in yields likely to cause some vendors to consider selling.
EVs not a threat yet
Ms Rader said despite the common refrain that the sector was under threat from increasing uptake of electric vehicles (EVs), there was little evidence to demonstrate this was actually having an impact on values.
Part of this was due to service stations pivoting their offerings to include electric vehicle charging on their forecourts.
Despite EV uptake increasing, it still remained at relatively low levels, Ms Rader said.
“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,” she said.
“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.”
The expansion of many service station options to include food and beverage options also suited the requirements of EV ownership, specifically what to do during charging.
“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,” Ms Rader said.