Apart from the Total deal and Murco still up for sale, little seemed to be happening in the forecourt market last year, but according to Adam Chapman, associate in the automobile and roadside team at GVA, a lot was going on in private.

"From a public perception it’s been very quiet, but there’s been a lot happening and you only hear about those things once they have happened," he says. "I can’t remember the last time I had three or four sets of particulars to look through, but honestly, would you willingly be selling now?"

He has a point, as fuel volumes are down, many operators’ margins are down and, as a result, forecourts are often perceived to be worth less than they might have been. However, some operators are in a position where they have no choice but to sell. Chapman advises: "If you have to sell then you need to counter any belief that it’s a distress sale. If anyone perceives it’s a distress sale then the value could halve overnight." He says the most important thing a would-be seller should do is their homework, and by that he means having a logical reason for selling whether it’s retirement or that you’re going into another venture. Chapman advises that sellers seek professional advice. Of course you might think he would say that. But he adds: "The actual price you’d achieve with an agent will far outweigh any fees. "If you are thinking of selling later this year then start now. Go to an agent and ask whether they have any clients looking and invite offers. The key is to get to the point where you are able to sell before you finally have to."

On the flipside of selling is, of course, buying, and Christie & Co’s director Allen Shepherd believes all the movement from the oil companies has suppressed the private market.

He says: "It’s not because there is no appetite for deals. People do want to buy but at the right price. Some people have already found a site they like but they are waiting for something better to come along. I don’t think that will happen and they will end up going back to their first choice. Some people have been sitting on their hands waiting for ’cheap’ Total sites (and by cheap I mean value-for-money) to come on the market. But this is not going to happen. The sellers will want to make money from them."

Shepherd says his company has been very busy on the valuation side: "That’s because there have been a lot of changes in bank personnel, and these new people don’t necessarily understand the fuel supply market. So we have done a lot of re-evaluations."

Mention the word ’bank’ and everyone assumes they are not lending, but Shepherd says Santander has come into the forecourt arena and is keen to lend. "Not only is it offering a competitive rate, but its loan-to-value figures are better than some others," he says.

Two-tier market

GVA’s Chapman believes there’s a two-tier market: "The bigger retailers have definitely got more bargaining power. They generally have good relationships with banks, plus they have underlying assets. But one-man-bands and those new to this market haven’t a cat-in-hell’s chance of finance unless they have a very good site where the value is clear cut. Then the bank will be receptive."

David Collins, a partner at Adlers, believes that where the proposition and borrower are sound, bank funding is available from certain banks without too much difficulty.

He adds: "Given the publicity around this issue in the media, I have been surprised that bank funding has not been a major issue in any of the sales with which I have been involved.

"Some banks are much stronger than others in the forecourt lending market and have the ability to properly assess the risk. Selecting the right lender is very important."

John Coulling, associate director motor trade and roadside at Lambert Smith Hampton, believes the continuing reluctance of the majority of the major banks to provide finance in the sector has had a "calming" effect on bids and therefore values realised, particularly at the bottom end of the market.

"At the top end of the market there is still strong interest in quality sites, although those prospective purchasers with an established credit line with a bank obviously appreciate they are operating in a ’buyers’ market’. In a number of cases I’ve experienced the situation where a vendor’s aspirations on value are adrift of bidders by some 10%-15%."

Coulling adds that he is a little puzzled by Shell’s actions. He explains: "Obviously the biggest story of 2011 was the acquisition of Total UK by Rontec Investments headed up by Gerald Ronson, and then the immediate agreement to sell on 254 filling stations, out of Total’s retail network of 480, to Shell. This was swiftly followed by the sale of some of Total’s marketing and distribution assets to DCC Energy, to include Total’s dealer business.

"Leading on from this and this is the slightly puzzling bit is that against the trend of previous years where we have seen major international oil companies such as Repsol, Kuwait Petroleum, Elf Oil, Jet (Conoco), Texaco and, more recently, Total UK either leaving the UK market completely or withdrawing from retailing with the sale of their retail networks, we now have Shell in one stroke substantially increasing the size of its retail network."

Underlying strength

At Adlers, David Collins says business was generally steady last year.

"We were one of the few agents to have offered a portfolio of trading petrol filling stations on the market which kept us very busy. In addition, we sold a number of individual forecourts.

"All sites marketed in 2011 have either been sold or are under offer, which I feel gives some indication of the underlying strength of the market.

"We successfully sold a portfolio of operational petrol filling stations this year for BP to various operators.

"There was considerable interest from a variety of prospective purchasers ranging from the well-known groups to individual site operators.

"I am inclined to think that 2012 will be similar to 2011 in terms of the forecourt property market but much depends on whether a large number of sites come onto the market. Supply of sites has been limited over the past few years which has supported values, but a large number of sites becoming available within a limited time span could have an impact on values.

"Given the global economic environment and perceived lack of confidence in the markets generally, the forecourt property market has performed well, although the number of sales actually concluded is probably relatively small. I believe there are some ’off market’ deals in the offing that may be concluded soon".

Peter Nicholas, senior associate at Rapleys, agrees that despite the tough economic trading conditions, the forecourt market has proved more resilient than most when compared to other commercial property markets.

"While values have fallen 10-15%, demand for established, well-located sites remains relatively buoyant, particularly within the leased sector.

"This is more so throughout the Midlands and Southern parts of the UK where unopposed trading positions can be identified. That having been said, a pipeline of new-to-industry sites seems as far away as ever, and further downward pressure on forecourt numbers seems almost inevitable in the face of ever-increasing dominance from the supermarket operators."

Coulling concludes: "Well-located sites with good fuel and shop sales revenues and particularly, where there is potential for improvement by extending the shop and/or the introduction of ancillary income streams, will still be in demand in 2012. However, a potential over-supply in the market could occur early on in the year with the continuing rationalisation of major oil company networks such as BP, Esso and Shell, (particularly the latter) and, of course, there may still be some fall-out from the remaining Total sites owned by Rontec."

Property Values Indices 2012

Petrol Station Property Values (PSPV) Indices 2012, supplied by Barber Wadlow, in association with the RMI and Catalist Experian

l Petrol station property values were largely sustained in 2011, despite difficult trading conditions.

l The impact on values due to reduced fuel volumes has been propped up by improvements in shop sales.

l Values are further supported by increased interest from the major food retailers, as well as growing pressure for market consolidation in the independent dealer sector to capitalise upon economies of scale.

According to the PSPV Indices (January 2012), the value of the average independent dealer site (2.3m litres/shop sales: £430,000) has seen only a 5% decline in value over the past 12 months. This is a positive result in light of difficult trading conditions, which saw fuel volumes down 11.8% in the dealer sector in the first six months of 2011 (AA October 2011). Values have generally been supported by the continued improvement in shop sales.

Better quality dealer sites have largely held their value. Once again, improved shop sales are the reason for sustained values, coupled with a dearth of good quality opportunities coming to the market. Funding for retailers remains challenging, but as seen with recent disposals (such as the tranche of BP sites) interest and values have been strong because of a lack of supply.

An evolving market characteristic is purchasers willing to pay for untapped trading potential, particularly in respect of shop sales. Independent retailers, backed by symbol groups, are becoming sophisticated operators and can project future trading potential. Prices paid may therefore appear out of kilter with actual trading because of the value that is being placed on untapped potential.

Demand for better quality sites is also coming from a wider spectrum of parties. At Barber Wadlow, we have seen interest from major food retailers including Co-Op, Sainsbury’s, Asda, Tesco and Martin McColls, while the Waitrose/Shell tie-up is a welcome development. The Spar wholesalers are also hungry for sites to expand their food retailing network. Interestingly, and against the grain of the oil companies’ divestment programmes over the past 10 years, we have seen oil companies coming back into the market to acquire sites, with Shell and BP advertising their requirements. This policy appears to be about upgrading the quality of their network, therefore we expect to see them continue with selected disposals so more opportunities for independents.

Alongside this demand, there is now greater pressure from market consolidation in the independent dealer sector in order to capitalise upon economies of scale. Ownership is still extremely fragmented even MRH and Snax 24 control only 3.5% of the market each and there are only three other businesses with in excess of 0.5% share (Motor Fuel Group, Park Garage Group and Euro Garages). There are clear signs that a handful of parties are keen to grow their networks, including new entrants. We anticipate Rontec’s acquisition of Total will be the first of a number of transactions of its kind.

The Indices also reports sustained rental values for the better-quality sites. The reasoning is two-fold: the lease route is less capital intensive; and the major food retailers, which are eyeing up the better quality sites, are used to taking leases.