There’s no doubting the big property stories of 2018 with the biggest of them all being MFG’s acquisition of MRH but there was a lot more going on than that. Think Prax buying HKS, as well as Certas Energy and Jet snapping up sites. Indeed, according to forecourt property specialist Barber Wadlow, excluding the MFG/MRH deal, there were an estimated 195 sites transacted last year, which is 15% up on the 2017 figure.
Of course, the story of Jet buying sites was headline news, but Matthew Williamson, director at GVA says that in reality, the likes of Essar, Harvest and BP have all been acquiring sites regularly over the last few years. "This means Jet’s re-emergence on the acquisition trail is just a continuation of an existing trend rather than the start of a new one. It shouldn’t materially affect the market unless they move to acquire one of the larger dealer groups. However, it does point to a view that fuel suppliers have realised that having greater control over their dealer network might help protect their business.
"Having a mix of company- and dealer-owned sites helps to spread their opportunity and risk going forward."
David Collins, senior partner at Adlers, agrees about Jet: "It makes sense for a producer to acquire outlets for their product. Others may follow suit, but the numbers will not be that great."
families selling up
Williamson says that alongside the headline deals, there have been a number of established family-owned groups selling to larger businesses. "These stories don’t always grab the headlines, but they are equally important in understanding the market.
"While the consolidation and merger activity has widened the gap in site numbers between the largest groups and the rest of the independent market, it is refreshing to see a new wave of smaller family-owned regional groups that are looking to expand their portfolios and earn a place within the Top 10 Indies list.
These groups’ expansion plans have been aided by the increase in the number of forecourts coming to the market both individually and as portfolios. We expect to see this continuing throughout 2019."
One such portfolio that went to market in 2018 was Cornwall Garage Group’s 17 sites. Christie & Co managed the deal and received offers on every property as well as nine group offers, including three in excess of the aggregate guide price.
The Barber Wadlow Property Market Index (above) reveals that forecourt prices have plateaued and rose by just 1% in 2018 but demand remains strong with some sites selling for way above their guide price.
One example was the former Viewforth Filling Station near Kincardine Bridge, which secured twice the guide price when it went to auction, and went for £116,000. SVA Property Auctions director and auctioneer, Shaun Vigers, said: "The site has a high-profile position at the southern end of the Kincardine and Clackmannanshire bridges.
"The site’s location certainly provides huge potential for redevelopment and alternative commercial use. But the final price wasn’t too much of a surprise for us, as after 25 requests for legal packs prior to the auction, we were ready for some intense bidding."
Collins from Adlers says that although Brexit and some of the economic uncertainty around that has taken some of the heat out of the market, demand for forecourts remain strong.
"Unlike the general retail market, forecourts have been unscathed and values are holding up well, although I suspect that the market may have peaked. However, in order to acquire sites in a competitive market, it is necessary to be bullish. That said, I have advised clients not to bid on some sites with poor potential and to lower their bids on others where I feel that they are unrealistic. I think it is a case of horses for courses in the sense that there may be valid reasons for making what would seem to be a silly offer where, for example there are economies of scale for a particular operator. Often, silly bids do not materialise into deals."
Williamson says: "Demand, and therefore values, remain strong with offers reflecting the quality or scarcity of the individual opportunity. For the right opportunity, we would still expect to see strong competitive bidding. However, as the number of sites coming to the market increases, the demand and supply issue that has driven the market for the last few years may start to reverse."
Mark Frostick, senior associate at Rapleys, agrees that values have remained strong but says there continues to be a lack of opportunities, and generally his firm is not seeing parties overpaying just to obtain sites. It’s unlikely that values will increase dramatically given the economic uncertainty particularly depending on the Brexit effect . If the supply of funds is reduced then the number of active buyers could be dramatically reduced. However, we would expect demand to remain strong for a petrol station whatever happens if sensibly priced and with no issues."
preparation is key
When it comes to buying, Williamson says preparation and flexibility are key: "Talk to agents and make sure they are aware of your requirements. Speak to your bank to find out what they will support and prepare your professional advisers, whether that is environmental, legal or valuation. Use sector specialists, as this will be seen as a positive if you are bidding against stronger buyers or higher bids.
In terms of geography, while you might be lucky, most buyers have to expand their geographical area to acquire sites. Restricting yourself to your local area is likely to reduce the choice or mean you have to pay a premium as you are seen as a special purchaser."
Sticking with geography commercial property consultant company Charles Darrow, says it sold more forecourts in the South West last year than any other agent. The company helped Certas acquire Devon’s first fully automated, 24-hour pay-at-pump site in Cullompton, and is looking to source more for them in 2019.
Director Paul Heather says: "There is a diverse range of requirements from lots of different operators, whether they be small independent petrol retailers or large oil companies. Certas, for example, are keen to acquire small rural sites which they could develop into 24-hour operations with a minimum fuel volume expectation of 2m litres per annum, whereas Euro Garages are very much looking for potential in sites with a view to developing a convenience store and adding concessions such as Starbucks, Subway or Greggs. Oil companies such as Shell and BP are still looking for high-volume fuel sites, although these are becoming increasing difficult to come by."
Collins believes most buyers are already in the market and will have contacts in the industry. "It’s always good to stay in touch with the specialist agents," he advises. "Another good source is oil companies’ area representatives. They seem to know who’s interested in selling."
Mark Frostick, senior associate at Rapleys, says that generally the majority of purchasers are looking for sites with a proven track record, and generally are less willing to pay for potential than a proven trading record. If you’re looking to acquire, he says you need to make sure you are on the mailing list for all the specialists. "A specific approach to a specific site can work but expect to pay well over the odds to tempt a party to sell," he says.
Meanwhile, the forecourt sector benefited from 45 new-to-industry sites in 2018 as well as 25 return-to-industry sites.
Mark Frostick, senior associate at Rapleys, says the new and return-to-industry development markets remain healthy with a number of specialist developers looking at potential opportunities with a keen interest.
"Our planning department is dealing with a large number of new-to-industry sites and redevelopments, and we expect this trend to continue in 2019."
And David Collins reports that work in finding new-to-industry sites for BP really gained traction last year.
Best year to date
Finally, Forecourts4sale Ltd reported its best year to date in 2018, and the company’s forecourts specialist, Richard Smith, says they are busy helping the likes of Rontec and others acquire sites, while at the same time assisting independent operators achieve the best price possible. He says one option which is often over looked in this market is leasing a site out, which means you retain the freehold and have a rent coming in each month which takes away the stress of running the business.
Forecourts’ electric tactics
While some forecourt operators are already offering electric vehicle (EV) charging at their sites, others are taking a ’wait and see’ approach. That latter approach means having extra space on-site is favourable so they can add EV or other future fuel services at a later date. Matthew Williamson, director at GVA, explains: "The exact requirement for future vehicle fuelling is not known, so having space to add facilities or reconfigure the existing site may help futureproof sites."
Steve Rodell, managing director retail at Christie & Co, says petrol retailers’ interest is in the underlying real estate-backed roadside retail offer, underpinned by consumer behaviour. "Convenience retail and foodservice will increasingly form an important pillar of this business so investment in petrol stations is likely to remain compelling for some time to come."
With EV charging, he says there is a reluctance to give up valuable parking spaces which can generate footfall into the shop where margins are more attractive. "Inevitably, the future will see a greater confidence and implementation of EV charging but perhaps by then hybrids or even hydrogen fuel cell technology will have overtaken pure electric," Rodell says.
He believes that transient locations where forecourts are often located will be more suited as top-up locations for EVs. "It is our view that whether to top up vehicles with fuel or meet consumers’ convenience needs on the go, what we currently know and love as ’petrol filling stations’ will remain relevant and valuable as wider ’refuelling facilities’ for the foreseeable future."
Growing the Gulf brand
Gulf Retail was an active player in the property market last year, strengthening its company estate with the six-site acquisition of David Taylor Filling Stations. It remains committed to further acquisitions in 2019 if they prove a good strategic fit for the business, according to Richard Billington, retail director, Certas Energy.
"One of my core objectives is to grow the Gulf brand across the UK, organically and through acquisition. The great thing about being part of an organisation like DCC, a company that thrives on acquisition, is that there is a real enthusiasm for the growth of our Gulf network. We have the agility, the structure and the funds in place to act quickly and with much greater flexibility than others. The on-going challenge for any business is to find the right fit.
"We recognise that a strong company-owned network is an ideal complement for our thriving dealer operation," continues Billington." It enables us to use size, scale and knowledge to offer options to our dealer team in their quest to grow the revenues of every one of our Gulf dealers. We’ve been working hard to bring the sites into harmony with the rest of our company-owned operation, investing in the latest back-office technology and new on-site facilities as we future-proof the business. David Taylor Filling Stations was already a well-run business with a great team of people. Some of their best practises we plan to emulate within our COCO network and share with Gulf dealers, several of whom have taken up an invitation to experience the operation at first hand."
Forecourt Property Market Index 2019
Barber Wadlow’s Forecourt Property Value Index (in association with Experian Catalist) recorded only a 1% value increase in 2018, but it was the seventh consecutive year of growth. The Index has more than doubled over the past 15 years and achieved a 74% increase since the bottom of the market in 2011.
Barber Wadlow director, Adam Wadlow, says: "A plateauing of values was anticipated in 2018 following the announcement of MFG’s acquisition of MRH, as both were actively acquisitive in 2016/17, accounting for circa 60% of all fuel retail group transactions over the last three years.
"MFG’s absence from the market as an active buyer has not, however, been a drag on the size of the market. We are seeing other buyers filling the gap, including Certas Energy, Phillips 66, and Prax Petroleum, as well as new entrants including Stratford Retail Group and SGN Retail. The latter is owned by industry veterans Graham Peacock and Susan Tobbell, and the acquisition of Global Fuels represents their return to the market." Wadlow says these new buyers demonstrate the strength and depth of the marketplace, which is underpinning values.
Single sites also continue to appeal to a wide range of buyers depending upon business type and geography. Wadlow says Barber Wadlow sold/let single sites in the last year to Rontec, BP, AF Blakemore and the Co-Op Group.
Going forward, he expects demand and values to be sustained buoyed by favourable trading conditions and frustrated by the ongoing lack of acquisition opportunities.