Covid proves Service Stations are an enviable asset for commercial investors

 

The COVID shutdowns and slowdowns we’ve experienced over the last two years have showcased the resilience of Service Stations.  Underpinned by long leases, servos have proven to be an enviable asset for commercial investors seeking consistent reliable returns.

With public transport abandoned and incessant border restrictions, Covid times have seen a ramp-up in local travel and an increase in domestic road travel, driving a surge in demand for fuel and convenient retail and fast food and beverage services.

Service station sales have risen 39 percent over the last three years, from $354 million in 2017 to $493 million in 2020.  There are now more than 6,000 service stations across Australia and around 789 motor vehicles per 1,000 people, the sixth-highest level globally. 

And this appetite for servos is not looking like dissipating any time soon. Despite improvements in public transport infrastructure, ride-share technologies and the beginnings of a transition to electric vehicles, Australians are still heavily reliant on cars. 

With an entry-level buy-in of about $4 million, this asset class delivers a solid investment case based on historically long-term leases, consistency in performance and the added opportunity for development potential based on often high-profile or sought-after locations.

Yields have tightened on the back of increased investor demand in recent years,  and now average sub 5.5 per cent with further tightening expected as demand for this type of asset intensifies and shifts to business cases with quality tenants and upside potential.  

This provides a strong opportunity for income-focused investors, particularly when compared to the residential market.

Service stations - What to focus on when investing?

Yields have tightened on the back of increased investor demand in recent years. As yields continue to compress it is increasingly important to focus on business cases with quality tenants and upside potential when investing in a service station. 

The success of your service station investment hinges on:

  1. ensuring you approach a lender with an appetite for the business 
  2. the correct presentation of your business case and loan submission, and
  3. the structure of your finance to evolve with your business.

Each bank will assess the availability of funding differently and that’s where we can help. We work with business owners and investors to secure funding for development, acquisition, and refurbishment.