The Valuers' View - Service Stations
A survey of m3property Valuers
The Valuer’s View
In times of uncertainty where transactions are limited and new trends establishing, industry participants place even more reliance on Valuers to provide market guidance.
To assist lenders, investors and owners, the Valuers at m3property have contributed their opinions on the current state of the property markets and where they expect those markets to head over the next 12 months.
This is the eighth report in a series of papers on the major sectors of the Australian property market and focuses on Service Station property.
Key Service Stations Sector Insights
- Travel restrictions and border closures reduced cash flow in the early stages of COVID-19. Restrictions on public transport and reopening of some borders resulted in a demand recovery.
- Rental risks, however, are on the downside as unemployment rises and confidence in the economy remains weak.
- The low interest rate environment and appetite for long-WALE is expected to see yields stabilise and tighten in the longer term.
Value Comparison by Sector
Stages of the COVID-19 recession
The COVID-19 crisis is likely to have three distinct stages:
“Yields are currently holding and expected to sharpen over the next 6-12 months.”
- Investors continue to be attracted to service stations. Long-term secure leases to national companies plus options and outgoings paid by the tenants are available on most properties for sale keeping steady and demand buoyant.
- With the re-commencement of intrastate travel and borders starting to re-open petrol stations are well placed to benefit from increased domestic travel while international borders remain closed.
- The low cost of debt which is expected to continue over the next three years is also likely to keep investment demand positive.
- IRRs are expected to follow a similar trend to yields.
- Rent risks are on the downside with Valuers predicting a slight fall in face rents.
- Incentives are forecast to largely be stable over COVID-19.
- The outlook on values is largely based on the cash flow profile. As there is likely to be reduced cash flow growth in the short- to medium-term this may result in slightly reduced values.
- Overall, the low interest rate environment and continued appetite for acquisition in the industry is expected to hold yields at the current level and to continue to tighten in the longer term.