When an article appeared in The Grocer at the tail end of last year stating that the Co-operative Group had snapped up another seven forecourt sites, Allen Shepherd’s phone did not stop ringing. That’s because Shepherd is director of corporate retail at Christie & Co, which had handled the sale for QMP, and the calls were from companies wanting to know why they hadn’t been alerted to these sites coming on the market. "That just goes to show how in demand forecourts are," says Shepherd. "The market’s so hot that we don’t need to go onto the open market. We know what buyers are looking for and we tend to pick out three to six parties and sign them up to a confidentiality agreement."

Of course Shepherd recommends that both buyers and sellers sign up to an agent - so buyers know what’s available and sellers get the best price for their business. And with 10 or 20 buyers for every site that sounds like good advice. Prices have been going through the roof; Shepherd saw one forecourt go for £3m.

But the $64m question is, will the forecourt property market boom last? Nigel Berney, managing director at the Nigel Lawrence Partnership, comments: "The filling station market’s strength over the past 12 months appears to have been largely driven by better operational profitability and may therefore prove resilient in contrast to weakening in other property sectors - even in the era of the £1-plus per litre of fuel. The fundamental characteristics of steady or increasing demand, coupled with a reduced number of outlets as marginal sites fall away, means better performance for the remaining sites.

"The market seems to have adjusted to Platt’s-based supply terms and shops continue to perform strongly. While the residential and general commercial property sectors seem to have stuttered in the face of credit market instability, we have not yet seen this in the filling station sector and we look forward to a strong market in 2008."

Allen Shepherd too believes the downturn in the housing market will have little effect on forecourt property, but David Collins, partner at Adlers Chartered Surveyors, reckons there’s uncertainty across the board. "At the moment there is something of a phoney war in the commercial property market while the market adjusts to the new conditions. We are in a transitional phase and most people are predicting a difficult year ahead. What is clear is that bank funding is not as readily available because of the credit crunch.

"The forecourt market has performed rather well over the past couple of years but with a reduction in the availability of bank funding this may change."

Of course all sales are subject to those all important funds but Shepherd says some players have very deep pockets: "The convenience store operators have the deepest pockets - the likes of Spar, the Co-op and Somerfield however Tesco is not paying big money for sites at the moment. The other c-store players look at sites with stores taking £20,000 a week and think "If the shop can do that turnover without a brand, just think what it would do with one" and they’re forecasting turnover of £25-30,000 a week so they can afford it."

And Chris Brown, managing director of Autohouse, says there has been demand from ambitious entrepreneurs who are looking to acquire their first forecourt. Interestingly, he says they often have substantial funds behind them - both their own and support from the major High Street banks.

However John Coulling, associate director of motor trade and roadside at Lambert Smith Hampton, predicts a dramatic change in values linked to the downturn in the housing market. He explains: "As we know the alternative use value (predominantly based on residential development) of operational petrol filling stations particularly at the lower end of market has underpinned their value for a number of years now. With the current uncertainty in the housing market this is another factor which could add to the tightening of lending criteria by the banks. I do however expect to see good quality/highly profitable stations retaining their value."

== what buyers want ==

When it comes to what exactly buyers are looking for, Brown says: "A well-located and reasonable-sized shop, with a good sized forecourt and opportunities to create incremental income from ancillary activities.  Volume is not critical, as buyers firmly believe that they will build that up, but I would caution against sites with a volume less than 2mlpa. There is a link between volume and shop sales - it is called the customer."

Shepherd reckons there are still fuel retailers out there looking for high volume sites who don’t want c-stores. But at the same time there are those who will only consider a site which has a store of 1,000sq ft or more. "However there are only around 2,000 petrol stations that fit that criteria," he says.

Back to who’s buying what, and Berney adds: "In acquisition terms oil companies have been relatively passive, and activity in the market has principally been through rationalisation among the dealer groups. The Park Garage Group continues to grow strongly, and any constraint is really due to lack of availability of sites, as owners retain profitable outlets. This has led buyers to look outside the traditionally-favoured regions, and in some cases sites which have left the market are being considered for re-opening."

He reckons that the funding process will be more rigorous in the next few months and therefore advises that vendors ensure they have comprehensive management information available. "Making things easier for buyers to get finance makes it easier for them to buy and thus easier for an owner to get his price. Equally for a buyer, those with established funding relationships will be favoured, so they should sort this out with their bank from the start," he says.

And Chris Brown adds: "I think demand will continue into 2008, but I suspect that some of this year’s buyers may find that it is tough to make a profit and to service the level of loan that they have taken on. Loans may be less easy to find, with the recent bank sub-prime loans problems, and more expensive for newcomers."

Shepherd reports that BP has been selling off all its sites in the US as it has realised it cannot operate forecourts as well as the convenience operators. "A decent shop can increase the fuel sales so BP will win on fuel sales - it’s a smart attitude."

== BP BONUS ==

Interestingly, he adds that it is the BP sites here that are fetching the best prices: "It’s snob value really, people think BP sites are the best so they will pay more for them. Those sites with Platts deals are also fetching more and a good valet service and an ATM will also add value."

And he reckons there are banks that are desperate to get their cash machines on forecourts. But it’s not just banks who want some forecourt action, Shepherd says Subway is keen to expand its forecourt presence too.

Adlers’ Collins says that generally speaking, sites in urban areas among lots of chimney pots will attract more demand and consequently higher prices. "There are many other factors that affect value too such as local competition including supermarket forecourts, age of tanks, local fuel pricing and retained margins plus the potential for redevelopment. Rural sites tend to be more difficult but a high-volume site on a heavily trafficked route with little competition can equally attract a high value."

He adds that London and the South East remain strong but there is also plenty of activity in the North West.

Shepherd says sellers should realise that buyers are not region specific any more: "This is quite unique to business sales - the fact that forecourt sales are not geographically limited like other businesses are."

Finally, when it comes to selling, Chris Brown says he always advises clients about what to do to achieve the best price.

He adds: "However, if Tesco is rumoured to be taking an interest in the site next door for a Tesco Express, there is not a lot that you can do, except get in touch with Tesco immediately, and try to persuade them that yours is a much better proposition.

"This is what I would have done had I been acting for the vendor of a very busy and very profitable site in Wales.

"However, I was acting for the purchaser when I spotted the name on a Land Registry entry and warned my client - a normally well-informed local man who knew nothing about Tesco’s interest in the site next door.  Needless to say he did not go through with the purchase!"


=== Tips for buyers and sellers ===


? Don’t overbid - remember that you have to fund the purchase out of receipts.

? Always allow sufficient funds to carry out any necessary refurbishment.

? Look for a good franchise brand for the shop and seek their advice.

? Seek advice from a specialist chartered surveyor before committing.

? Prepare a sensible and achievable business plan, and discuss it with your bank and accountant. An informal chat may cost you nothing and it could save you a fortune.

? Have a good look at the place before you buy. Ask yourself - are the pumps old and is the forecourt looking tatty? Is the shop looking worn and dirty? Would you buy a sandwich or an ice-cream there? How many customers came in while you were there, and what did they buy (apart from petrol)?


? See what improvements you could make at minimum cost - a clean forecourt and a lick of paint do not cost much.

? Look at the best operators and learn from them.

? Do the staff look smart and clean? Are they friendly? Will they make a good impression?

? Consider selling before April if you will be affected by the changes to ’taper relief’.