While all around property prices are crashing, there’s one sector where demand is still outstripping supply and prices are holding up quite well. That is, of course, the forecourt sector and while buyers are not prepared to pay ’silly money’ for sites any more, they’re willing to pay a realistic amount. Mark Frostick, associate at motor trade and roadside at Rapleys, says yes, values have dropped but adds: "I think prices would have come down anyway - they went as high as they were ever going to get. We’re definitely at much more sensible levels now." He also reports quite a lot of interest in the market. "Twelve to 18 months ago we were getting 20 bids per site. Now we’re down to six to 12 bids per site but that’s still very good."

John Coulling, associate director motor trade at Lambert Smith Hampton says the major casualties of the credit crunch have been the low volume/low quality sites which were previously achieving high values. "Moreover, the alternative use value of such filling stations (predominantly based on residential develop-ment), which had underpinned their value for a number of years, has been badly hit by the downturn in the housing market. As a general guide I would say that values have dropped between 10-20% from their peak in the spring/summer of 2007."

Adam Wadlow, principal surveyor in the automotive and roadside team at GVA Grimley, says he doesn’t expect a further significant reduction in prices: "The market is still very active and we expect demand to remain reasonably buoyant, particularly for multi-site opportunities. Despite the significant growth of the leading independent dealers, the market is still very fragmented with the top 10 groups accounting for only 13.5% of outlet share, but this reduces to 10.4% if the COGOP sites are excluded. We therefore consider there to be scope for independent groups to grow networks through business acquisitions and expect the market to significantly consolidate over the next five to 10 years. Moreover, large portfolios of sites can be expected to attract a premium value because of the scarcity of such opportunities, as well as the advantages of being able to grow a business quickly and the critical mass generated can provide a purchaser with enhanced "buying power" to assist in negotiating more favourable agreements and rebates with their suppliers."

Wadlow says his company has seen a change in purchaser mentality in their approach to value. "Historically a retailer would value a site based upon past trading performance, however a retailer is now prepared to pay for (at least part, if not all) of a site’s potential."

Tony Evans, director of the retail division at Christie & Co, agrees: "Buyers are looking for opportunities. If a site’s gunning it at the moment with good volumes and a good c-store then a buyer is only buying it to maintain the status quo. We’re finding that buyers are looking for sites where they can introduce new revenue streams such as an ATM or a Subway."

Evans also highlights an interesting emerging trend where buyers are reviewing redundant forecourts that were sold two or three years ago and have since been used as second-hand car lots. "We sold two recently that were re-opened as forecourts," he says.

Meanwhile, reviewing 2008, Christie’s director of corporate retail, Allen Shepherd, says there was a blip in the market last summer, when the scale of the banking problems emerged, and finance started to be refused. "Loan-to-value ratios were readjusted. They were at 85% but fell to 65-70%, which meant people had shortfalls in their funding. That led to delays in transactions as buyers sorted out their finances. In some cases vendors waited or agreed to split the difference to get the deal done quicker."

At present the loan-to-value ratio remains reduced. This means that if a site is acquired for £1m, a purchaser will now need to put in around £300,000-worth of equity, which GVA Grimley’s Wadlow says is probably twice as much as in 2006/7. Of course it’s cheaper to borrow now but the banks are cautious about lending.

"Some banks are looking to lend, particularly those that have a good track record with forecourts and still want to support the sector," says Christie’s Shepherd. "Others, which have not been involved in the sector before, are looking at dipping their toes in the market.

"Independents are still keen to buy. Some small operators with eight or nine sites might sell one and put the money in the bank to secure their position going forward. Decent sites will sell and there will be an awful lot of interest."

Calum Campbell, partner at Graham & Sibbald, says there are a number of very well-funded investors and dealer groups which recognise the long-term strength of the sector and are acquiring both individual sites and other dealer groups with multiple sites. "These purchasers prefer to acquire off-market to avoid wasted time and resources and, in the past six months, we have witnessed a distinct rise in the number of sites sold off-market from our offices.

"Dealers wishing to dispose of their site may also need to adapt to the evolving market - with the current lack of funding we have been involved in far more lettings. This option has benefits for both parties. A lease enables the dealer to expand without having to rely on banks for funding while the site owner benefits from a rental income rather than a one-off capital receipt. This option works very well for site owners who wish to retire as they can effectively use the rental income from the site as a pension. Equally those site owners not nearing retirement can often transfer the site into a Self Invested Pension Plan for their long-term future."

Wadlow says some operators are having to team up with investors in order to be competitive, offering more attractive terms to their backers to finance deals. "For example, Somerfield and Malthurst have undertaken 20-25 year lease-backs (with fixed rental increases throughout the term) which would previously not have been considered, except for the particularly high-profile sites such as motorway service areas."

Another ’plus’ for forecourts, according to Campbell, is that banks recognise them as operational businesses often with strong cash flows from which their repayments can be met.

"There are still a core number of purchasers seeking to acquire," he says, "including those dealer groups who have either built up a war chest of funds or who have access to strong lines of bank funding. In addition, there are a number of investors in the market and we have been actively involved in acquiring sites for investors who are taking a longer-term view of the forecourt market and its future."

He’s hopeful that as we head towards the latter half of the year, credit markets will improve, enabling purchasers to access funding and re-enter the market.

"We would also expect that as the credit markets improve, the first sector the banking industry will seek to support will be the residential mortgage sector. This should enable residential developers to improve the market for forecourts as residential development sites, which has been hard hit during the latter half of 2008."


=== gva grimley/catalist experian petrol filling station value indices ===

GVA Grimley, in association with Catalist Experian, has launched a petrol filling station values indices. Adam Wadlow, principal surveyor in the automotive and roadside team at GVA Grimley, reckons it is the first indices of its kind. He explains: "To overcome the problem of no two petrol stations being comparable and the difficulties of tracking values, we teamed up with Catalist Experian to formulate an indices to track prime vacant possession values."

The prime indices is based upon Catalist’s research of trading performance (fuel and shop sales) of the "average prime petrol filling stations" in the UK. The definition of that "average prime petrol filling station is:

* a high trading site that will usually be supplied by a major/strong oil company brand and will be situated fronting a main arterial/transient route and/or with a substantial immediate residential catchment. This definition excludes motorway service areas and forecourts attached to supermarkets.

* a site with fuel sales in excess of 7mlpa and shop turnover in excess of £1.5m per annum.

* a site offering extra services such as valeting facilities and an ATM.

This data has been used by GVA to formulate an opinion on value based upon prevailing market conditions at the time. The company has also reflected other profit centres (valet sales, ATM etc) to create an accurate picture of where values have moved from and to over the past eight years.

Wadlow says a number of assumptions have been made to make the indices consistent throughout, including that it’s a freehold and unencumbered site, with no environmental issues, and it’s operational and not in need of investment. From the indices we can see that average prime values have more than doubled from 2000 to 2008. This increase accelerated in 2004 as shop sales improved, as well as fuel and shop profit margins. This increase has occurred despite fuel sales remaining relatively static throughout this period. The increase in pricing has also been due to the improved availability of bank funding, which opened the door to a large number of operators.

"At the same time, there has also been a significant reduction in the number of sites in the UK. The sites that have been lost are tertiary/unviable sites, but it has concentrated demand onto a small number of sites.

"Enhanced value has also been the result of improved alternative profit centres including; ATMs, coffee machines and the incorporation of fast food outlets generating rental income.

"With the slowdown in the economy and the limited availability of finance, the market will detract, albeit given that the petrol station business model is far superior by comparison to 10 years ago, values will be sustained (to some extent). In summary, we believe property values will fall, but we are not expecting values to be subject to the same level of volatility that we have seen in the past."


=== Expert Advice ===

If you’re buying:

* Get your finance in place; there are still deals out there so it’s worth shopping around. Successful buyers will be those who can prove that they have the necessary funding behind them.

* Be prepared to pay for professional advice before incurring abortive acquisition costs.

If you’re selling:

* Get your timing right - buyers might be more interested in your site if you are selling at a time when your fuel agreement is coming to end and they can therefore do their own deal.

* Make sure your accounts are up to date.

* The more information you can give the better.

* Do an environmental survey and make sure the site’s running well.

* Use an agent - some people think it’s good to save on agent’s fees but it can be a false economy when an agent could have got them more money for their site. An agent can also operate off market and speak to people on your behalf without your staff or customers knowing.

* Don’t be seduced by the highest valuation - more often than not the figures are unattainable.

Source: Adlers/Christie & Co/Rapleys