‘Black gold’ rush: Investors line up for petrol stations despite fuel’s uncertain future
A series of high-octane real estate deals is fuelling investment in the ubiquitous neon-lit petrol stations that line Australia’s highways and suburban streets.
But the rush of property money into the fuel and convenience retail sector is ignoring a looming threat from ride-sharing, electric vehicles, falling car sales and the potential for tightened emissions standards, experts suggest.
Global fuel retailer Caltex, which is navigating an $8.6 billion takeover bid from Canadian convenience giant Alimentation Couche-Tard, kicked off a period of heightened activity in December when it signed a $136-million deal to sell 25 mainly inner-city, high-value petrol stations as development sites.
Caltex’s former fuel sites will be converted into either supermarkets or apartments after the majority were sold to Woolworths and property syndicator Oliver Hume.
The strong sales prompted the fuel retailer to announce it will offload another 25 high-value development sites and also test investor interest early next year by floating a half stake in 250 of its service stations around Australia to form a $1.1-billion listed property trust.
Not to be outdone, diversified fund manager Charter Hall has also lined up at the petrol station bowser, outlaying $840 million for a 49 per cent stake in 225 BP fuel stores in a sale and leaseback deal that values BP’s portfolio at $1.7 billion.
Driving Charter Hall’s acquisition was the tempting 20-year lease structure and fixed income from each service station offered by BP as the major tenant.
But neither Australia’s fuel retailers or their new landlords will be immune from a structural shift happening in the background. An electrification onslaught is expected to spark changes in vehicle transport over the next 20 years.
Battery prices keep falling, says Bloomberg New Energy Finance, which will make buying an electric vehicle a more attractive proposition.
“As a result, we expect price parity between electric vehicles (EVs) and internal-combustion vehicles by the mid-2020s in most segments, though there is wide variation between geographies and vehicle segments,” the consultancy says.
We’re not oblivious to the eventual growth in electric vehiclesCharter Hall managing director and chief executive David Harrison
Japan, South Korea and Australia will all see significant adoption of EVs by 2040, with EVs making up 63 per cent, 52 per cent and 61 per cent of passenger-vehicle sales, respectively, they estimate.
Younger people, who a generation ago would have visited a local car dealer to get their first set of wheels, are now thinking twice. Some are delaying getting a driver’s licence at all, preferring to use Uber, Taxify, Lyft, or multiple other ride-sharing services, to get around.
The millennial mindset is being blamed for a worsening slide in new-vehicle sales, with a 10.1 per cent plunge in August extending a 17-month slowdown in sales.
Today, ride sharing services account for less than 5 per cent of total distance travelled annually by passenger vehicles around the globe. But their use is rising rapidly and by 2040 they will make up 19 per cent of total kilometres travelled, Bloomberg NEF estimates.
“We’re not oblivious to the eventual growth in electric vehicles,” says Charter Hall managing director and chief executive David Harrison.
“We’ve done a lot of research on the industry but I think you’re going to go through, frankly, a much faster growth in hybrids before electric or autonomous vehicles really take off,” he says.
“Part of the reason we like these portfolios .. is that they’re all on major arterials and no matter what sort of vehicle it is, whether it’s electric, or hybrids or fuel or diesel, there’s going to be pretty strong demand for tenants to be on those High Street locations,” Mr Harrison said.
The squeeze, if or when it comes, may be later in the life of BP’s 20-year leases.
Professor Michael Brear, director of the Melbourne Energy Institute at Melbourne University, believes mandated greenhouse gas emission standards in Australia are inevitable.
Around the planet, about 80 per cent of all new cars sold are already subject some kind of mandatory fuel consumption or greenhouse gas emission standard. Australia is an odd-country-out, with no similar regulatory requirements.
“The regulation of vehicles for greenhouse gas emissions is a question of time if we think climate change is real. It’s not politically without challenges, and we saw some of that in the last election campaign, but it will have to happen,” he says.
“Do I see a credible likelihood that Australian liquid-fuel consumption will fall dramatically over the next 20 years? Yes. And it should, if we are going after serious abatement. I can only see that as disruptive of the whole liquid-fuel supply chain.”
Fund manager Chris Brockett, whose APN Convenience Retail REIT owns 68 service stations, says the impact of electric vehicles is still too far in the future to have any material impact.
The bulk of petrol stations are on land that’s not worth a lot of money. It’s only of value because its on land that has a long term leaseAPN Convenience Retail fund manager Chris Brockett
Apart from two sites involved in the Queensland government’s push to roll out electric charging stations between Brisbane and Toowoomba, most tenants in APN’s properties were not installing electrification points, he said.
Instead, fuel operators were focusing on future proofing their stores by upgrading their convenience retail offering.
“What we are commonly seeing across all tenants – BP, Caltex and Shell – is that they are trying to derive more profits from shop sales rather than fuel sales,” he said.
The institutional landlords piling into service stations were solely focused on the tenure and income of their property leases, a leading industry analyst, who declined to be named, said.
“I don’t think they have really factored it [electrification] in,” he said.
“The bulk of petrol stations are on land that’s not worth a lot of money. It’s only of value because its on land that has a long term lease,” he said.
That’s not a view supported by Mr Harrison.
“We think it is fantastic real estate. We think the land value will grow at a much faster rate than inflation and therefore by the end of the 20 years they’ll very much be land banks with income,” he said.
Professor Brear said ride sharing, investment in public transport, regulation, and innovations in the personal mobility space, would all contribute to significant changes in vehicle use over the next 20 years.
But at the end of the day: “If you want to achieve reduced emissions, no matter how you do it, it must involve selling less gasoline and diesel.”
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