Fuel to the Fire: Service Stations Proving a Hot Investment

Service Stations as an asset class proved their resilience through the worst of the COVID shutdowns and as such have become an enviable asset for investors seeking consistent reliable returns underpinned by long leases.

As public transport was abandoned and border restrictions saw many forced into local travel for ‘quick escapes’, domestic road travel increased as did demand for fuel and convenient retail and fast food and beverage services.

There are now more than 6,000 service stations across Australia and some 789 motor vehicles per 1,000 people, the sixth-highest level globally. A growth in service station appetite is evidenced in an increase in sales from $493 million in 2020, up 39 per cent from $354 million in 2017.

Despite improvements in public transport infrastructure, ride-share technologies and a pending (long-term) transition to electric vehicles, Australians continue to have a heavy reliance on cars. And, according to a study released by Viva, one of Australia’s largest energy suppliers, it’s a trend set to continue over the medium term.

With an entry level buy-in of about $4 million, this asset delivers a sound 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.

In more recent years, yields have tightened 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.

Service Stations – The Finance Facts

Bank appetite reflects demand in the asset class, which has more recently seen the following market parameters:

Investment:

  • Cost of Debt ranging from 1.8-2.9% (Floating BBSY 30 days: 0.06%)
  • LVR: 50- 65%
  • Term: 3-5yrs
  • Structure: Interest Only

Construction:

  • 70-75% TDC or 50-65% GRV
  • Interest Rate: 2.25% – 2.75% (Floating BBSY 30 days: 0.06%)
  • Line Fee 1 – 1.5%
  • Interest Capitalised

Risk parameters and weightings will differ from lender to lender with a broader focus on:

  • Environmental Remediation Risk
  • Age & Material of Tanks i.e. fibreglass or steel
  • Location: Metro vs Regional
  • Complimentary QSR offering
  • Alternate Site Use
  • Quality of Operator

Ultimately, each bank will assess the availability of funding differently and that’s where I can help.

The success of your service station investment hinges on (a) ensuring you approach a lender with an appetite for the business (b) the correct presentation of your business case and loan submission (c) the structure of your finance to evolve with your business.

At Green Finance Group we have a specialist finance team who work with business owners and investors to successfully secure funding for development, acquisition, and refurbishment ongoing. We’d be happy to talk you through a number of recent client case studies and provide a concise review of improved finance options available for your next commercial property acquisition or current portfolio.

Contact your Green Finance Group broker or give us a call on 07 3899 2866.