Queensland Service Stations Market Update Winter 2019
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Queensland Service Stations Market Update Winter 2019
Key Points Both Viva Energy REIT and Convenience Retail
REIT have highlighted in their most recent investor
Rental Market
• There has been considerable growth in the presentations the importance of convenience During 2018, the average net rental rate was
number of service stations in South East retailing and amenities at service station sites over $456,667 for new service station leases signed
Queensland over the past three years. the long-term. Service stations are increasingly in Queensland. On a per vehicle bay basis, the
• Average rents grew strongly in 2018. being positioned to offer services (such as postal, average net rental rate was $48,316 during 2018,
click-and-collect and laundry) and dining options up from $42,405 per vehicle bay during 2017.
• Yields have continued to tighten in metropolitan
to ensure their relevance over the long-term. The
areas but softened slightly in regional Rents per vehicle bay have grown at an average
agreement entered into by Woolworths and Caltex
Queensland locations. rate of 8.77% per annum since 2012, including
in 2018 (with up to 250 Caltex sites to be rolled out
• Risks to the sector remain longer-term, but growth of 13.72% from 2017 to 2018. The average
under the ‘Metro’ banner) also shows that these
operators are aware of the main challenges lease term was 14.3 years for service station leases
players are aware of their need to diversify their
(including the threat of electric vehicles) and that commenced in 2018. This was up from 12.6
retail and services offering.
are taking steps to ensure the longevity of their years in 2017.
business.
Growth of Electric Vehicles The increase in the average lease term was
somewhat unexpected, given the longer-term threat
Market Overview Australia remains behind other comparable
posed to the industry from growth in the electric
countries in terms of take-up of electric vehicles
There are an estimated 9,260 service stations vehicle market.
as well as Government regulation and policy
nationwide (Source: IBISWorld). By revenue, Coles on the matter. Most developed, and a number of
is the largest operator in the market (accounting developing, countries have set targets for consumer
for 13.9% of industry revenue) followed by Caltex take-up and production of electric vehicles. In
(12.6% of industry revenue). The industry has addition to this, car manufacturers are increasingly
become increasingly competitive during the past
Average Rent and Initial Lease Term
developing targets on electric vehicle production.
$50,000 20
decade, and this has limited growth in profit, which $/Vehicle Bay
Numerous consumer studies point to the initial
IBISWorld estimates to be 2.3% of industry revenue. $45,000 18
cost of electric cars and limitations in charging and Initial Lease Term
Average Initial Lease Term (Years)
charging infrastructure as the core reasons for poor $40,000 16
14.3
Market Share of Key Industry take-up of electric vehicles by Australian consumers. 13.6
$35,000 12.8 12.8 12.6 14
$/Vehicle Bay
Operators However, these hurdles are not expected to remain 12.3
over the medium- to longer-term, with the cost of $30,000 12
$48,316
electric cars expected to be comparable to petrol 9.4
39.4% $25,000 10
$42,485
$41,537
$40,977
Coles cars by the mid-2020s. In addition, the need for
$38,201
Woolworths $20,000 8
$33,506
public charging infrastructure has recently been
Caltex
$29,171
BP identified by Infrastructure Australia in its 2019 $15,000 6
13.9% Infrastructure Priority List. The report listed the
4.5% 7-Eleven
United $10,000 4
construction of a national electric fast-charging
3.5% Puma
network as one of its 29 High Priority Initiatives. $5,000 2
2.5% 11.5% Viva
6.7%
Other The Federal Government has also announced new
5.4% 12.6% $0 0
policies in relation to electric vehicle targets. In 2012 2013 2014 2015 2016 2017 2018
March 2019, the Federal Government announced
Source: m3property
Source: IBISWorld, m3property that it would develop and release a national electric
vehicle strategy by mid-2020 and that 25%+ of new
The service station industry is at the beginning of car sales should be electric vehicles by 2030.
a significant structural shift, largely due to growth Future growth in the electric vehicle industry is a
in the electric vehicle market. Growth in electric definite risk to the fuel retailing industry over the
vehicle take-up presents a major risk for service medium- to long-term and has already inspired
station operators and owners. some operators and owners to expand their retail
and services offering.
| Page 2 Page 3 | Queensland Service Stations Market Overview
Investment Market SEQ New Supply SEQ Supply & Population
Service stations remain a sought-after investment m3property research shows that close to 90 new Growth
for private investors, superannuation funds, property service stations have been opened since the start
trusts, REITs and offshore investors. Institutional of 2017, or are currently under construction, across An important success factor for service stations is
interest in the sector has grown over the past five South East Queensland (SEQ). Most of the new proximity and exposure to customers. New service
years and this has also seen portfolio transactions service stations that have been completed in SEQ stations that are developed in areas experiencing
become a prominent feature of the market. are in the Brisbane, Moreton Bay and Gold Coast (or forecast to experience) strong population
Local Government Areas (LGAs). growth are typically part of retail or mixed-used
Analysis by m3property shows that the average
developments.
Equated Market Yield for metropolitan service 7-Eleven has rapidly expanded its store network
station sales in Queensland was 6.23% during over the past two years, with over 40% of new service The Moreton Bay Region is an example of an
2018. The average Equated Market Yield for station supply in SEQ being leased to 7-Eleven. area that has experienced strong service station
regional service stations was 6.71% during the Some of the other operators such as Caltex and construction activity alongside population growth
year. Between 2013 and 2018, yields tightened by BP have focussed more on full redevelopments of during recent years, particularly around North
240 basis points for metropolitan sales and 145 existing sites over the opening of new sites. Lakes, Mango Hill, and Griffin. Since 2017, there
basis points for regional sales. have been 20 new service stations constructed (or
New Supply by Operator that are currently under construction) in the Region.
Average Queensland Service wholesale fuel supply agreement also means 7-Eleven However, new supply proposals for the Moreton
2% BP
Station Yields Woolworths will be able to provide up to 250 11% Bay Region have now slowed and this is occurring
Caltex
12% mini-supermarkets under the “Metro” banner at Costco alongside a slowing in the rate of population growth
11%
10% Caltex petrol stations. 43% Freedom forecast to occur in the region.
6% Puma
8% • Late 2018: Woolworths announced its intention 4% Shell Another example of an area experiencing strong
7%
6% to sell its fuel business to British EG Group for United population growth is the Pimpama / Coomera
12%
4% $1.725 billion. The sale was approved by the Woolworths (Caltex)
1% region. Alongside strong population growth, there
Metropolitan 4% Coles Express (Shell)
2% Foreign Investment Review Board in February have been six new service stations constructed
Regional
0% this year ande included 540 service stations. Source: GapMaps, m3property since 2017, with a further four proposed.
EG operates more than 4,700 service stations Note: includes new service stations completed since Jan-17
Going forward, we expect that the Logan and
in Europe and North America. Looking at future supply, we estimate there to be 65
Ipswich regions will see growth in the supply of
Source: m3property • February 2019: Viva Energy acquired the new service stations proposed for development in
new service stations. These regions are currently
remaining 50% interest in Liberty Oil’s wholesale SEQ. The number of new service stations proposed
experiencing strong population growth and
business and announced the establishment for development has declined by 13.33% over the
Some major industry activity that has occured over residential development (particularly in areas such
of a retail joint venture with Liberty Oil’s retail past year (from circa 75 as at April 2018). The
the past year includes: as Ripley, Yarrabilba and Jimboomba), however,
business, of which it will own 50%. Brisbane City LGA accounts for the highest number
they have not yet seen a significant boom in new
• July 2018: Woolworths and Caltex announced of service stations proposed for development,
There are two major REITs which operate in the service station construction, as has occurred in the
a 15-year deal that will see 125 Caltex stations followed by Logan and the Gold Coast.
service station market, being Viva Energy REIT and Moreton Bay Region over recent years.
join the Woolworth’s redemption network. The
Convenience Retail REIT. New Service Stations by LGA The map overleaf shows new and proposed
Brisbane service stations across the Ipswich and Logan
APN Convenience Retail REIT Viva Energy REIT Moreton LGAs, against forecast population growth (shown
Logan
Number of properties 70 454 by shading of Statistical Areas) and residential land
Ipswich
Portfolio value $355 million $2.495 billion supply (shown by small shaded areas with white
Sunshine Coast
WALE 12.1 years 12.6 years Gold Coast borders).
Weighted Avg, Capitalisation Rate 7.0% 5.8% Other SEQ Regions
Major Tenant/s Puma, followed by Woolworths Viva Energy Australia 0 10 20 30 40 50
Source: Company reports, m3property Proposed Completed / Under Construction
Source: GapMaps, m3property
| Page 4 Page 5 | Queensland Service Stations Market Overview
Note: includes new service stations completed since Jan-17
Ipswich and Logan: Population Growth, Supply and Residential Development Whilst this is the case, inner-city sites are more A potential risk for investors is the possibility of
likely to be able to be repurposed to alternate uses future road upgrades which negatively impact traffic
if required, thus mitigating the risk in investing in flow past service station sites. In areas experiencing
inner-city service stations. strong population growth, it is reasonable to expect
that road upgrades will form part of the area’s
In the investment market, the major REITs are
medium- to long-term plans. This could present
expected to remain active in the service station
a risk for service station investments in some
sector during 2019. We expect that the yield
locations, particularly given the changes occuring in
differential between prime and secondary service
the market due to growth in electric vehicles, which
station investments will become more defined over
is making site fundamentals (such as location) a
the medium-term, as investors will look to acquire
key consideration for long-term investors.
service stations that have a wider convenience
and services offering and an alternative use. The However, it is important to note that for some
repurposing of some existing service station sites service stations, future road upgrades could also
Source: GapMaps, m3property to cater for growth in electric car ownership will be be a positive if they result in increased traffic flow
required over the medium- to long-term. past the site.
Our Recent Service Station Valuations in Queensland
Outlook
The outlook for the service station industry is mixed. their non-fuel retail and services offering, and we
Whilst the short-term outlook is for continued expect this trend to continue. However, according
investor demand and expansion (albeit slowing) by to IBISWorld, the sale of petrol, diesel and gas
the major operators, the longer-term outlook carries fuels accounts for 87.5% of fuel retailer revenue,
more uncertainty and risk. highlighting how deep the impact will be as electric
vehicles become more commonplace. The volume
According to IBISWorld, fuel retailers have a
of fuel sales is projected to grow at a subdued rate
medium to low risk during the 2020 financial year.
over the next five years.
Industry risk has declined slightly from 12 months
ago. Despite the medium to low rating, there remain Furthermore, improvements in public transport
some risks to service station operators, with the infrastructure are expected to increasingly
largest relating to the high level of competition in encourage consumers to use public transport
the industry. This is both internally (from competing over driving, particularly within inner-city locations.
service stations) and externally (from public Projects such as the Cross River Rail (early works),
transport and growth in the adoption of electric and Brisbane Metro (fully funded), the Redcliffe Rail
hybrid vehicles). Corridor (completed) and future extensions of the
Ipswich and Beaudesert rail lines are expected to
Growth in consumer take-up of environmentally
reduce consumer reliance on private vehicles in
conscious cars has strengthened over the past
Greater Brisbane over the medium- to long-term.
five years and the trend is likely to threaten the
fuel retailing industry over the long-term. We Similarly, the Gold Coast Light Rail (of which two
are increasingly seeing new service stations stages have been completed) and the proposed
and service station redevelopments place less Sunshine Coast Light Rail are improving public
emphasis on fuel retailing and more emphasis on transport options in the Gold and Sunshine Coast
markets.
| Page 6 Page 7 | Queensland Service Stations Market Overview
Key Contacts
Casey Robinson Craig Berridge Ross Perkins
Research Director Associate Director Managing Director
Qld | +61 7 3620 7906 Qld | +61 7 3620 7916 Qld | +61 7 3620 7901
casey.robinson@m3property.com.au craig.berridge@m3property.com.au ross.perkins@m3property.com.au
m3property.com.au /m3property
DISCLAIMER © m3property Australia. Liability limited by a scheme approved under Professional Standards Legislation. This report is for information
purposes only and has been derived, in part, from sources other than m3property Strategists and does not constitute advice. In passing on this
information, m3property makes no representation that any information or assumption contained in this material is accurate or complete. To the extent that
this material contains any statement as to the future, it is simply an estimate or opinion based on information available to m3property Strategists at that
m3property
time and Strategists which may be incorrect. m3property makes no representation that any such statements are, or will be, accurate. Any
contains assumptions, 8
unauthorised use or redistribution of part, or all, of this report is prohibited.
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