Service station assets have grown in appeal over the last five years, increasing investment levels and resulting in considerable yield compression. As bond rates remain low and the cost of financing reduced, more investors are seeking an alternative investment type to show safe, high income returns.
While service stations historically have been tainted with fears regarding contamination which has alienated less sophisticated investors, the more recent appeal of a stable income and well maintained assets has led to an increase in investment demand. In many cases these assets show their attraction by offering long term leases with fixed rental increases, paid outgoings, possible turnover upside and for those multinational brands clauses which stipulate requirements around maintenance and refurbishment ensuring these properties are “set and forget” type investments.
There has been some volatility in sales turnover levels over the last ten years, the highest level of transactions were recorded in 2014 where a number of portfolio sales were completed. While these types of transactions remain commonplace the number of quality assets available on the market has declined over the past two years. Investment demand has been strong, hence coupled with limited supply of stock has resulted in strong tightening of yields. Similarly the move by investors up the risk curve has seen a large increase demand by investors who previously were strong residential or share market investors most notably in the sub $5million price range. This trend is likely to continue as alternative investment options which offer stable returns are limited and the yield compression felt in other markets such as small retail strips, strata office and industrial is likely to be mirrored in this market.