Service Station Investment Appeal Growing in WA

Service Station Investment Appeal Growing in WA

West Australian investors have embraced the nationwide enthusiasm for investing in “set and forget” service station assets which have provided high returns on equity, says Ray White Commercial.

Ray White Commercial Head of Research, Vanessa Rader, said the emergence of Coles and Woolworths in the service station space has helped increase investor demand.

“With interest rates remaining at a prolonged low and returns on bonds minimal, more investors are seeking an alternative investment type which can demonstrate high, yet safe income returns,” she said in the Between the Lines – WA Service Stations Market Overview report May 2017.

“These assets offer long term leases with fixed rental increases and paid outgoings. They are seen as “set and forget” type investments, highly attractive to investors seeking a higher return on their equity.”

Ray White Commercial WA Director, Stephen Harrison, said investment growth in service station assets in WA between 2014 and 2015 was robust.

“2015 represented the greatest level of sales turnover recording $52.935 million or 29 transactions; up 163.17 per cent on the prior year’s volume. During the high turnover period of 2015, 54.51 per cent of sales were recorded in the Perth metropolitan area with $24.081 million sold in the regional areas of the state. More recently in 2016 and 2017 (to April) sales volumes have reduced due to lack of quality stock available to the market rather than lack of demand to purchase. 2017 to date has only recorded four sales representing $7.625 million, albeit with a stronger weighting in the Perth metropolitan area.”

Stephen Harrison said there is considerable range in yields for service station assets and in more recent times strong levels of consolidation.

“Average yields are now as low as 5.5 per cent for both metropolitan and regional properties,” he said.

“This range is dependent on the quality of occupier as well as other factors including land area, traffic counts and turnover levels. The greatest factor for any divide in yields is the quality of the occupier, with known multinational brands attracting the tightest yields due to their more reliable income stream and stringent policies with maintenance of the property.”

Stephen Harrison said service stations have already shown themselves to be highly sought after by a new breed of property investors looking to secure assets with long lease tails to multinational tenants in both major city centres and regional areas nationally.

“This has resulted in increased competition and reduced average yields across WA which is set to continue for the remainder of 2017,” he said.