23
Jul

COVID fuels demand for service stations and ‘pandemic-proof’ assets

COVID-19 has fuelled demand for service stations as investors chase “pandemic-proof” businesses, with several fuel assets up for grabs as part of a $165 million portfolio auction of essential services properties.

Petrol stations, fast food assets and childcare centres are among the 52 properties going under the hammer over two days in August in Burgess Rawson’s largest investment portfolio auction for 2021.

Burgess Rawson national director Jamie Perlinger said the stock on offer reflects investors wanting to buy into businesses trading throughout lockdowns.

“Everyone is looking for an essential service,” Mr Perlinger said.

“If you look at the majority of the stock we are selling, and we have been selling for the last 20 years, it has been essential service. And you’ll find that the majority of them have been open and trading, across the whole portfolio that we’re selling.

“It’s highlighted more now because of COVID that people want to make sure that they’re buying properties with businesses that are robust and can trade through whatever’s thrown at them,” he said.

Mr Perlinger said service station values had held firm during the pandemic, with declining public transport use and an increased dependence on car travel along with people holidaying at home bolstering demand.

“Their classification as an essential service, combined with secure, long-term lease profiles, have made service stations a highly-attractive asset class,” he said.

The eight service stations on offer include three United-tenanted servos in Braeside and Somerton in Victoria and Tamworth in NSW, plus four Shell/Viva stations in Sandy Bay in Tasmania, Queenstown and Parafield Gardens in SA and Ravenswood in Western Australia. There’s also a Shell/Coles Express in South Bowenfels in NSW.

COVID boosts investor demand for servos

Yields for service stations have been sharpening over the last few years even before COVID-19 hit and now sit between 4.5% and 6% while prices for individual servos range from $2 million up to $20 million for some of the bigger outlets, Mr Perlinger said, as buyers focus on steady businesses that can deliver regardless of lockdowns.

“The yields have sharpened over the last couple of years and that’s from, one, the popularity but also long-term leases as people are looking for security,” Mr Perlinger said.

“These [service stations] are all trading through COVID. None of them are closed and that’s what people have been looking for – people are looking for businesses that have been part of the essential service and investing in those types of properties.”

REA group economist Anne Flaherty said petrol station yields have sharpened over the past year as they are one of the stronger-performing asset classes.

“In a lot of other sectors we’ve seen yields soften; the fact that they’ve come down for petrol stations shows that investors do have confidence in those types of property,” she said.

“Even though yields are now lower, they’re actually still relatively high,” she added.

“If you think about it from the perspective of an investor, a yield above 4% is really, really strong in the current economic climate.”

The onsite retail and food offerings at most service stations are another vital source of revenue as more people who may have previously used public transport now drive during the pandemic.

It was all about convenience, Mr Perlinger said.

“I’ve always said that, especially when selling a 7-Eleven, it’s all about the convenience store and I think fuel is a by-product of the convenience store in some respect. We just want things quickly nowadays,” he said.

Ms Flaherty said most service stations rely on the retail part of their business as their primary income stream, particularly in regional areas.

“In order to compete a lot of petrol stations are barely breaking even on the petrol that they sell; most of their revenue comes from people coming into the petrol station and actually buying something,” she said.

Strong demand for essential service assets

Mr Perlinger said some investors who had traditionally invested in residential property or shares were now looking at niche commercial asset classes that had performed well during COVID.

“Service stations, childcare centres and fast food retail have all demonstrated a resilience to market impacts that many other assets haven’t been able to achieve,” he said.

Blue-chip investments in the banking and government office sector also remain hotly contested among investors, he added.

Mr Perlinger said location was key in selling service stations, particularly as these stations may in the future also allow drivers to recharge or refill using different sources of energy such as electricity or hydrogen.

“It’s very important to be on a key road or a key arterial with huge amounts of passing traffic. One of these ones we’re selling has over 40,000 cars passing every day.

“I think these sites will offer everything for energy – whether it’s recharging or refuelling, whatever it is – in the future and with the added bonus of convenience retail,” he added.

The Burgess Rawson portfolio auction features three childcare centres, a KFC in the regional NSW town of Tumut, a Hungry Jack’s in Melbourne’s Campbellfield and a Domino’s in Geraldton in WA.

Other offerings include two Chemist Warehouses, five medical properties, an ANZ Bank in Mount Gambier in South Australia and the Royal Exchange Hotel in Brisbane leased by pub giant ALH.

The auctions will be held in Sydney on 3 August and Melbourne on 4 August, with both linked to Brisbane.

Extracted from Real Commercial