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NSW service stations still fueling investor interest

AS investors continue to reap the benefits of the current low interest rate environment, the quest to achieve a high yielding commercial property has seen more buyers investigate alternative asset classes, according to Ray White’s latest Between the Lines* research.

Ray White Commercial NSW – Metropolitan Sydney Associate Director Samuel Hadgelias said the service station market in particular continued to be an active asset class.

“It’s had high investor interest over the last five years, most notably from the private investor market,” Mr Hadgelias said.

“Over the ten months of 2019, Ray White Commercial has monitored $93,738,000 in service station transactions. Recent portfolio sales have propped up this total volume but it’s still behind the $165,720,000 recorded for the full 2018 period.

“Volumes have fallen substantially since the peak of the market in 2016 due to the change to LVRs, making it more difficult for private buyers to finance their purchase.

“Similarly, tougher lending conditions have seen greater scrutiny over asset purchases, which has also seen a movement in the volumes between regional and metropolitan sales.

“There are currently 116 new projects across the state, 84 of these being for the development of new service stations, including 66 in metropolitan locations.”

Ray White Commercial NSW – Western Sydney Director Joseph Assaf said yields for service station assets saw a rapid reduction since 2012, in line with the broader commercial market across the country.

“Low interest rates and increased wealth associated with residential gains saw an influx of private investors seeking to diversify their investment portfolio with alternative assets,” Mr Assaf said.

“This included service stations, regardless of their location, with both regional and metropolitan assets in hot demand.

“Despite the average decline, the range achieved remained broad, depending on quality, location and lease covenant, including the brands in which they were associated.

“The demand is such that we’ve just listed, in conjunction with Ray White Commercial Qld, a BP service station at 14 Bernera Road in Prestons with an $8,800,000 price guide.

“The South West Sydney asset is leased until 31 December 2030, with three extra five-year options, and has a site area of 3,612sq m** with great access to major arterial roads.

“The current net income produces $442,617* p.a. plus GST with the lessee reliable for 100 per cent of the outgoings, including land tax.”

Ray White Head of Research Vanessa Rader said while the threat of electric vehicles caused some trepidation by buyers, the larger roadblock for this asset class was finance availability.

“There’s some uncertainty surrounding the permanency of petrol fueled vehicles as many overseas nations have mandated the reduction in these vehicle sales within the next 20 years,” Ms Rader said.

“Despite this being a threat to the future of the service station, this has not translated through to the development of new service station assets across NSW.

“With fast charging technology rapidly improving, the evolution of this asset class will see greater electric charging facilities needed.”

*Ray White Between the Lines – NSW Service Station Overview – November 2019.
**Approximately.

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