Service Stations Fuelling up for 2025 Comeback

Petrol stations are in the box seat for a resurgence as the volume of assets on the block grows ahead of 2025. It’s a $48.4-billion industry in Australia with more than 6600 service stations nationwide. But it’s the strategic blend of essential business stability and attractive returns, particularly in regional areas, that is luring investors back to the asset class. Amplify Funds Management recently made its first venture into the fuel and convenience sector in Queensland, acquiring a portfolio of six regional Queensland service stations for $25.74 million. The properties are leased with a 9.6 year WALE to Chevron and offer prime highway locations, industrial refueling sites or in strong rural economies at Atherton, Banana, Bohle, Nambour, Cairns and Gin Gin. Amplify chief investment officer Peter Rossi says the recent Queensland acquisitions are aimed at “capital preservation, secure and predictable incomes from world-class tenants and capital growth”. “We have been well supported by investors from regional Queensland who understand the inelasticity of fuel demands in country areas, far from urban EV influenced fuel economies,” Rossi says. The deal was brokered by Cushman &amp; Wakefield’s Daniel Cullinane and Daniel Wolman. Victorian co-head of investment sales Daniel Wolman says the deal shows the resilience of the portfolio-style fuel and convenience sector. “We are seeing this trend occur towards the back end of the year as the market anticipates favourable economic conditions with potential interest rate cuts on the horizon,” Wolman says. In the first half of 2024, 33 assets transacted for close to $100 million, cementing service stations as a top-five premium investment sector, according to Colliers research. Despite the gradual rise of electric car adoption, which now makes up 8.45 per cent of new car sales in Australia, the demand for fuel remains strong, and it’s a game of chess for the major oil companies and private developers looking to capture the favourable winds. The average sale price in the first half of 2024 was $5.8 million with an average yield of 6.55 per cent. However, it is no longer an asset class dominated by the major oil companies. There are now more than 40 brands in the space, and major private investors are taking greater market share as they seek out defensive assets. Colliers national head of premium investments Jordan McConnell says strong yields and long WALEs are driving a surge in investment activity by private players and “overwhelming levels of inquiry”. Service stations valued from $1 million to $3 million are generating a lot of mum-and-dad investor and owner-occupier activity, according to McConnell. “I think there are a few elements to the surge in activity,” McConnell says. “Probably the overarching element from an investor perspective is in evolving markets such as what we’ve seen in the last two years with rates going up, investors will shift towards defensive long-term secure assets with good covenants and a WALE that is 10-plus years or more.” McConnell says regional assets provide a better return and the smaller, “more manageable stations” have become increasingly popular. “You can look regionally and still be in that price of $1 million to $3 million and be returned plus or minus 7.5 per cent. It’s a really good catchment for mum-and-dad investors and a really strong owner-occupier market.” Game of chess Location remains critical, with high visibility sites and development potential commanding higher interest. But it’s not only about development opportunities. Many high-value sites are being bought up by groups as a strategic move to block competition. “Gone are the days when the BPs and Ampols and the major oil providers were the only ones in the market. Now there’s a lot more major private operators in that space,” McConnell says. “The big private companies will actively play a part in buying service stations. “Whether it’s the regional or metro markets, it’s purely for strategic purposes, to ultimately occupy them in the future or sit and hold and control them.” On the block Colliers is marketing the second tranche of a fuel portfolio listed by receivers Barry Kogan and Katherine Sozou. The eight petrol stations are being offered individually or in one line, with 16,900sq m of land and a passing income in excess of $580,000 a year. “We’re inundated with interest from investors but also the operators who are looking at these sites [and] saying that they’re poorly managed, they are older style, they are rundown, there might be lease expiries coming on the horizon,” McConnell says. “They can strategically buy these sites, potentially move into them, or even sites that don’t have short lease horizons, they will in some instances look to negotiate to take over the business.” ▲ Regional service stations, such as this Bundaberg asset that is on the market, are providing solid yields and good returns for investors. For the first tranche of this portfolio, McConnell said, more than 300 enquiries for the 11 sites, and 93 offers had been received. The second tranche has already generated more than 250 enquiries. “There’s huge interest in this sector,” he says. Colliers is also on the market with a portfolio for Ampol, which McConnell says is a “non-operational portfolio” and will likely be sold with caveats to ensure no competition. “I think this is our fifth portfolio that we’ve done for them in the last four years,” he says. “In some instances, they will put caveats on the site for non-petroleum, as a strategic block. On the rare occasion they will consider allowing it to be sold to a fuel operator, if there might be sort of alignments in place where that provider buys the fuel from that supplier. “And I suppose what’s interesting about that is that while they might not be sold to fuel, 50 per cent of the inquiries are from groups of developers, operators and investors wanting more fuel opportunities. “The demand is overwhelming, We’re two weeks in, and we’re north of 150 enquiries, which is extremely strong. In my experience, having done a couple of these, they will be sold in pieces.” And the market for fuel assets is becoming increasingly privatised with some private investors owning up to 200 fuel stations. Yields for new-to-market sites in Sydney and Melbourne are tight, from 4.5 per cent to 5.5 per cent, while Brisbane is 5-6 per cent. Older properties vary widely with yields of 7-16 per cent. In contrast, McConnell says fast food is offering yields of less than 5 per cent. Growth markets on rise Among the states, NSW has the highest number of service stations per 1000 people, while the ACT has the least. McConnell says it’s a correlation with car usage and number of service stations but there are a few key areas driving opportunity. “I think, from our perspective in the metropolitan market there’s probably going to be a saturation point,” he says. ▲ Cushman &amp; Wakefield agent Daniel Wolman stitched together the deal for Amplify to acquire the regional Queensland portfolio of fuel assets. “[But in the] prominent growth regions, there’s a massive amount of demand for opportunities in those markets to come through with the new residential subdivisions.” And the same principle applies to growth in the regions. “Developers are actively looking to get into those markets because of that population growth. So that comes in with infrastructure, you know, the childcare, the fuel, the fast food, all that stuff will come.” And it’s increasingly the more nimble, private major players that are stepping up to the plate to deliver the infrastructure to those regions. McConnell says the private investors and developers can be more nimble and aggressive with their rollouts, and build out their market share. Barriers to entry for private developers There are private families who own up to 200 service stations, and often work in partnership with the major oil companies to brand the assets. Although the framework of developing service stations is very similar to childcare, in that you find a development site, build the asset, find an operator and ultimately sell if off, McConnell says it is a much smaller and more niche market. “As a developer you can’t jump over from childcare to fuel,” he says. “People will try and do it. But unlike every person in Western Sydney, they can’t just go and ... slap a childcare DA on their two houses they’ve got side by side. So there’s a little bit more that goes into it, with barriers to entry and getting it right. “A lot of the established developers in that space have relationships with operators and they will run around with a tenant effectively in their pocket or find a site and they’ll say, ‘Well I can get you into here. What do you want to pay for it?’.” Fund managers Accord Property and Fawkner are two active players in the space, with a number of assets in the fuel industry between them. But the great electric vehicle disruption is on the horizon. “All the majors are starting to put infrastructure in,” McConnell says. “The privates or the major privates are also making provisions for that.” It’s not EV that McConnell thinks will disrupt the fuel economy, however, but green hydrogen. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Service Stations Fuelling up for 2025 Comeback

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