Retail fuel assets a pumping property market

Commercial,Investment PropertyFriday 15 March 2019
Property-Blog

The question of how electric vehicles will impact the retail fuel industry is one we’re asked constantly as commercial property agents.

And it’s a fair question. With electric vehicles becoming cheaper and more accessible to consumers all the time, the natural expectation is that petrol stations will suffer.

The reality on the ground, however, could not be more different.

As with many industries faced with a changing landscape and new technology, what we’ve experienced is an industry-wide response that has seen service stations modernise and adapt in order to remain relevant and viable.

And the result has been a dramatic turnaround in buyer demand.

The industry has outperformed even the most optimistic estimates in recent years, proving that the retail fuel sector remains a highly desirable investment option amongst commercial property buyers.

At Burgess Rawson alone, we’ve sold over 200 fuel assets with a combined total of $424 million since 2016.

Why, you might ask, do they continue to be so popular among investors, even in the face of change?

Prime locations
It rings true when we say, “location, location, location”. Strategically positioned main road sites in well-connected areas will always attract investor interest. These properties offer huge exposure and longer-term development upside, while maintaining the foot (and wheel) traffic necessary for tenants to thrive.

Investment security
Concerns around the future of the retail industry are not shared with petrol stations, simply because fuel is a non-discretionary purchase for most Australians. More than 99% of car sales were for petrol or diesel-powered vehicles in 2017*, underpinning the continued demand for what petrol stations offer.

Impressive lease terms and tenants
Long-term lease covenants to major international and national brands are a significant carrot for investors, who can often enjoy leases of more than 10 years. Top-tier national retailers like Shell, BP and others also typically boast vigorous maintenance practices, ensuring the buildings are maintained to a high standard, and at the tenant’s cost.

Attractive returns
Ongoing income growth is commonly secured by fixed annual rental increases throughout the term.

Limited outgoings
In many cases the tenant is responsible for all property outgoings, which often includes land tax and the maintenance of underground installations. This relieves the property owner of costly and complex repairs such as updates to the fuel pump systems.

Tax depreciation benefits
Despite tenants often absorbing the costs of property upgrades, in many cases investors are also awarded significant taxation depreciation benefits when they purchase newly developed sites.

‘Set and forget’ nature
Petrol stations require very little management input from landlords, which makes them a popular passive option for time-poor vendors. Considering long and secure leases are usually in place, investors can sit back and benefit from healthy returns with little groundwork required.

New or renovated developments
The retail fuel assets Burgess Rawson has taken to market over the past 12 months have largely been modern buildings and installations, aiding each site’s ability to serve as a long-term, easily manageable investment.

Increased environmental consciousness
Sophisticated fuel storage, monitoring and reconciliation systems designed to minimise any potential environmental impact are becoming more and more common in this asset class, which in turn helps to alleviate common concerns regarding the local ecological effect of the investment.

Tenant responsibility for all chemical contamination
There are understandably concerns from some buyers when purchasing a site that involves potentially hazardous chemicals. At petrol stations, however, the tenant bears the responsibility for any contamination and site remediation that may be necessary at the end of the term.

At the end of the day, petrol stations are still among the most landlord-friendly commercial properties you’ll find anywhere.

And with assets of all shapes and sizes for sale in metropolitan and regional locations, there’s generally a price point for everyone, from “mum and dad” investors to self-managed super funds, REITs and institutional investors.

For further information on fuel station anchored retail property assets, Jamie Perlinger can be contacted on 0413 860 315 or via email at jperlinger@burgessrawson.com.au