Barber Wadlow research (in association with Experian Catalist) recorded a 14% increase in petrol station property values in 2015 the fourth consecutive year of growth. This means values have now increased by nearly 50% since the bottom of the market in 2011, so a site worth £750,000 in 2011 is potentially worth £1.1m today.

Barber Wadlow director, Adam Wadlow, says: "Values are being driven by all segments of the market, with big and small retailers actively seeking to grow their businesses, albeit frustrated by a lack of stock.

While 2015 has seen approximately 865 sites transact, 83% of these sites have been part of the private equity investor transactions of Euro Garages and MFG. There were only circa 150 sites (1.8% of the UK forecourt network) transacted by other fuel retailers, which underlines the dearth of supply, particularly of single sites."

He adds that his firm’s market size analysis does not include the Shell/Esso portfolio sites, which were incorporated in the previous 12 months, as the marketing processes began in 2014. "While these portfolios amounted to the sale of 385 sites, there were only nine purchasers and 89% of the sites were acquired by only three parties (MFG, Euro Garages and MRH). So this is a further example of how difficult it has been for many retailers to acquire sites."

But the top five in the Forecourt Trader Top 50 Indies continue to grow. "The top five have recorded a combined network growth of 59% since 2012, with MFG recording a massive 532% growth following the company’s acquisition of Murco (235 sites) and a Shell portfolio of 91 sites," explains Wadlow.

"These groups are now of a scale to be of appeal to some of the major private equity investors, who have been attracted to the sector due to the positive cash flows, as well as businesses being underpinned by property values.

"Investor focus on the roadside sector to date had been confined to the motorway services sector because forecourt businesses lacked scale, but market consolidation has changed everything, demonstrated by Euro Garages’ sale of part of the business to TDR Capital, valuing the company at £1.3bn; MFG’s sale to CD&R for a reported £500m; and Applegreen’s recent float on AIM that valued the company at circa £215m."

Steve Rodell, head of retail at Christie & Co, says private equity firms usually want to take control of companies in which they invest: "However, the Euro Garages’ deal shows a willingness to take a minority stake for the right opportunity and underlies the strength of the Euro Garages brand and management. While this deal reportedly priced Euro Garages at around 11.5 times earnings the actual value remains a topic of debate across the market centred on what earnings the price relates to: historic, run rate or projected?"

Meanwhile, certain medium-sized retailers were able to capitalise on oil company disposals over the past 12 months. Examples include Golden Cross (eight new sites), Synergie (four sites), Spring (six sites) and HKS (30 sites).

Wadlow says HKS’s growth was mostly due to the company’s acquisition of fellow independent retailer Brobot’s 23 sites. "This is a likely sign for the future with independent retailers growing their businesses through mergers and acquisitions of other groups. But with only 1,215 oil company-owned sites in the UK, retailer network growth will have to come from other sources."

Christie & Co was involved in the HKS/Brobot deal: "We led the bank valuation for this acquisition and worked closely with HKS to secure the sites from Brobot," says Rodell.

But Christie was kept busy elsewhere too: "There has been a particular need for secured lending valuations to support the plans of progressive independent retailers who have sought to invest in their sites to ensure they continue to meet their customers’ needs," says Rodell. "Consumers are not just visiting filling stations for fuel but increasingly for their top-up shop and food-to-go missions. Forecourt branding is also changing, with customers driven by shop and coffee brands as much as fuel brands. Having a strong convenience retail offering is now more important than ever and over the past 12 months we have seen and valued some superb redeveloped sites such as the flagship HKS Sandringham site in Leicester."

Wadlow says improved trading conditions are having a positive influence on values, which is demonstrated by the considerable level of investment that some retailers are putting into some of their existing sites. "It is not uncommon for retailers of all sizes to be investing £1.5m-plus in order to enhance the retail offer and capture untapped trading potential. This level of investment underlines the confidence among retailers, as well as their lenders."

Jill Astley, associate for automotive and roadside at Bilfinger GVA, worries that the gap between good sites and lesser ones is widening: "The Top Five or 10 operators are spending good money improving their sites but at the other end of the market, they are not investing. For instance, they are letting their pumps run for a long as they can and therefore widening the gap between the prime sites and the under-invested ones."

Lines of enquiry

Adlers director David Collins reports that enquiries to his firm last year were mainly from established operators who wanted to expand their existing networks by acquiring groups of sites.

"The number of enquiries from potential new entrants to the market seems to have reduced. We have been busy in an advisory capacity for potential acquisitions and advising owners of sites on their potential. We have also been busy sourcing new sites for BP.

"We acted for private clients in the acquisition of Hythe Service Station in Kent early last year, which was acquired from MFG. This involved making a lengthy submission to the Competition and Markets Authority to verify the suitability of the buyer. But this was unusual in terms of a single filling station acquisition."

Supply versus demand

The story for 2016 looks likely to be one of demand continuing to outstrip supply. Mark Frostick, associate for automotive and roadside, petrol and convenience retail at Rapleys, says: "There is really not very much out there to buy. Dealers are either making good money or have no incentive to sell. People seem to be making good money from petrol stations and I can’t see that changing in the foreseeable future. Of course, people will always sell for the right price but that ’right price’ might be more than someone wants to pay.

"For the right site in the right location, competitive bids are putting the price up. And sites at the lower end of the market will sell because the banks are lending again, but those in the middle might suffer because they’re not good enough for the bigger groups to buy and not cheap enough for the smaller operators to buy."

Matt Greenaway, principal surveyor at Bilfinger GVA, says that when good quality sites do come to market there is a bit of a feeding frenzy with prices driven up by lack of supply. He says that when BP was looking at disposals earlier last year he’d heard there were 20-30 bids per property.

His colleague Jill Astley adds a note of caution: "There has been a really high level of interest in good sites but it means those operating lower quality sites see the good prices the better sites are getting and it gives them an inflated opinion of what their site is worth."

Calum Campbell, partner at Graham & Sibbald, says that during 2015 he witnessed significant uplifts in demand and the return of closing dates, with offers being achieved significantly in excess of asking price at the closing date.

"The trend continued into December with it proving far busier than recent years we had six transactions due to complete in the two weeks before Christmas. The main issue facing us now is the supply of forecourt property with a real lack of sites coming on to the open market.

"We’ve also noted that operators are returning to look at new-to-industry (NTI) sites and interest levels have continued to climb both for urban redevelopment opportunities and key trunk roadside locations. Despite the not insignificant costs of development, the economics of NTI sites are now far more favourable than they have been in many years."

Final word goes to Astley who says that for anyone thinking of selling, getting your house in order is key.

"You’ve got to have all your trading information and you’ve really got to push the potential of your site. Are there opportunities that have not yet been exploited in the shop, for example? If so, you need to show prospective buyers that if they get in now they can really enhance the site’s value."

Barber Wadlow Property Indices

Barber Wadlow research (in association with Experian Catalist) recorded a 14% increase in petrol station property values in 2015*, the fourth consecutive year of growth. As ever, no two forecourts are the same from both a property and trading environment perspective, but this indices does give a headline view on how the market is performing.
*Value of the average ’bottom quarter’ of oil company sites (in terms of trading performance), which is now the most representative trading profile of the sites that are coming to the market. No two forecourts’ trading performance is the same, making it virtually impossible to compare one transaction with another. Barber Wadlow, working with Experian Catalist, has devised an Indices based upon opinions of value since 2000. To overcome a number of sector valuation issues, Barber Wadlow has based value on a freehold site that is unencumbered, free from contamination and fully operational, with no investment required. This research should be considered as a guide only to market conditions.

Investment opportunities

Barber Wadlow director, Adam Wadlow, says property investors continue to acquire petrol stations let to retailers on long leases. Barber Wadlow research calculates the total forecourt property investment market in 2015 to be approximately £105m, a 32% increase on 2014. Wadlow says the firm transacted circa £35.5m of investment sales in 2015 (34% of the total market), with purchasers comprising major institutions, pension funds and private property companies. Prime yields remained stable at 5% net initial yield (NIY), although Barber Wadlow did sell a forecourt in Milton Keynes let to Shell for a price equating to 4.65% NIY in October.
Jill Astley, associate for automotive and roadside at Bilfinger GVA, confirms that there is a lot of interest in sites as investment opportunities, where assets are very ’well let’ by big firms. "This is where there’s a long lease with good tenants so the likes of Sainsbury or the Co-op is paying you the rent. This is very attractive as a secure income stream but there are not many of these types of deals around."
She says they’ve also seen interest in sites with short term leases, say five years, because there’s an opportunity to take occupation of that site at the end of the lease.