Service Station assets in Australia continue to appeal as investors explore alternative asset classes
JLL expects strong investment in Service Station real estate to continue in 2018.
Long initial leases, fixed annual rental increases and land rich sites are just a few reasons why investors have flocked to the Service Station sector in Australia. With a moderate yield tightening predicted and ongoing offshore investment, JLL expect strong investment in Service Station real estate to continue in 2018.
JLL Australia Focus on Service Station Report reveals the demand for the retail asset class has been driven by the private investor market who are attracted to the opportunity to secure an asset offering a blue-chip lease covenant at an attainable price point.
In 2016, sale volumes peaked with over $400 million worth of service station transactions recorded across Australia's eastern seaboard, including 21 in Victoria, 31 in New South Wales and 19 transactions in Queensland.
JLL Victoria Retail Sales & Investments Director, Stuart Taylor said, "whilst private investors have typically dominated the sector, self-managed super-funds, offshore investors and newly formed Real Estate Investment Trusts (REITS) are becoming increasingly active."
Regarded as a defensive asset class due to the non-discretionary nature of fuel sales and the stable demand profile of fuel consumption, the sector has recorded significant yield compressions over the last five years. Victoria achieved the sharpest average initial passing yield of 5.15% on assets traded in 2016 followed by Queensland (6.24%) and then NSW (6.45%). Victoria's Service Stations have continued to be aggressively priced in 2017 with an average 5.36% initial yield being achieved.
JLL Victoria Retail Sales & Investments Executive, Sam Baines commented "Investors in this sector have seen significant capital growth in recent years. Sale rates per sqm achieved on Service Station transactions across Australia's eastern seaboard have increased from an average of $1,180/sqm in 2011 to $2,050/sqm in 2017 (as at August), representing growth of 12.3% per annum."
Mr Baines continued "the outlook for the service station market remains strong with electric and plug in hybrid vehicle sales representing less than 1% of the 1.2M passenger vehicles sold in 2016."
Mr Taylor added "confidence in the sector has been bolstered by ongoing reliance on fuel consumption by Australians, with the number of registered passenger vehicles in Australia increasing 22.8% from 2007 to 2017."
Taylor concluded, "the increases in new car sales shows an ongoing reliance on fuel consumption by Australians and positions Service Station assets as an appealing long term investment class."