There is strong demand at present for service stations sites, with developers and fuel companies seeking out suitable land for service station developments.
Rental levels have improved substantially over recent years, due to improved margins and profitability, along with increased competition among the competing fuel companies. Into the future this increased competition could potentially have an impact on margins, which may in turn have an impact on rental affordability.
The current low interest rate environment has also placed downward pressure on yield levels, coupled with the current increased rental levels has resulted in historically high achieved prices.
There is a real possibility that into the future the level of activity and the firm yield levels currently witnessed may soften. However, for now, conditions within the service station market remain strong.
In the current market there is a distinct yield differentiation between investments offering a high quality tenant such as Woolworths, BP, Caltex, 7-Eleven or Shell with good residual lease terms, versus typical service station investments to second tier but still good quality tenants. Both types of investments are sought after in the current market, however the prime investments are achieving a yield premium.
Another factor which can have a significant impact upon yields is the age, construction and condition of the underground fuel tanks. Facilities with older style metal fuel tanks are less desired than those with modern style dual skin fibreglass tanks. This is due to the environmental risks associated with the older tanks, the preference by fuel companies to operate facilities with modern style tanks, and the high cost to replace old tanks with new tanks.
Demand in regional areas is reduced in comparison to major centres, although there is still reasonably good demand for facilities at present. However, longer selling periods, higher yields and lower values are applicable.
It is noted that at present, all fuel companies, along with service station developers, are aggressively looking for new sites, and there is a real possibility that further new sites will be developed within this region into the future.
Below are notable Queensland sales from 2019, with relevant sales and valuation information.