In the face of rising operational costs and record inflation levels in 2022, the UK’s petrol filling station market (PFS) has proved to be more resilient than ever.
Activity levels across the transactional forecourt property market in 2022 were similar to 2021, according to Steve Rodell, managing director – retail at Christie & Co, but he says a number of large projects influenced retailers to ‘keep their powder dry’ in the first half of the year.
“Christie & Co’s retail team launched several disposal projects for clients including for EG Group and Ascona, though the biggest distraction was the sale of Co-op sites to Asda, closely followed by the sale of 87 MFG sites required by the CMA,” explains Rodell.
“These projects kept the biggest operators busy, which left an opportunity for smaller operators to pick up single sites. As such, demand at every level of the market remains strong.”
Daniel Cook, head of automotive and roadside at Rapleys, says they were involved in a number of transactions during 2022 but unfortunately many were bound by NDAs, which can be typical of such transactions. But he says that what has been a little bit of a surprise is how demand for solus fuel sites remains strong: “We are in discussions at the moment on one at well over £200,000 pa (rental) on the basis of a 10-year term commitment.”
“Demand is very much still high for good forecourt sites,” explains Cook, “and they really don’t come to the market very often so when they do it’s often competitive if not transacted off market between brands early on. Demand could tail off a little in the medium term with the switch to EVs but we see a lot of the big players investing in their existing sites or acquiring, when they can, with the future firmly in mind.
“Bigger players such as Euro Garages and Applegreen are still acquiring operational sites, for example, but we also see smaller groups buying secondary sites as these opportunities arise.
“Of course, those that are looking to the future may be buying for restructure and redevelopment with an eye firmly on post-EV and hydrocarbon transition. That’s probably where the real opportunity lies.”
Rodell agrees: “With the prospect of EVs or new technology taking over the roads, PFS must be able to adapt to changing consumer needs and the size of the station will allow the operator to adapt faster, reaping the rewards sooner and for longer. Our advice for buyers looking to either expand their portfolio or for first-time buyers, is to buy larger plot sizes or sites with little competition. We think this is vital for the long-term future.”
Meanwhile Cook believes the biggest opportunities in the market right now are for the repurposing and repackaging of existing sites. “If you are a smaller group without EV infrastructure in place, then consideration needs to be made as soon as possible for how to move forward as the asset will lose capital value - and income - if nothing is done. The options could be an exit to a player that can put said infrastructure in place, or by evaluating the potential of the sites with an expert who can highlight the opportunities that are available for the owner’s individual operating model. Each asset and owner are different after all and thus have different pain points and considerations.”
All that said, Rodell explains that the looming ‘Road to Zero’ and 2030 is having little effect on operators within the PFS market. “Christie & Co has found that EVs only make up around 2.2% of the total vehicles on the road today, demonstrating the longevity in the PFS market. However, the first-time buyer pool is growing as the market is realising the 2030 ‘Net Zero’ objective may not be realistic in this current economic climate.”
And Cook says Rapleys has not seen as many forecourt operators consider their exit options as they would have expected at this point. “When it does come, the options will be mostly about flexibility and repurposing for the future. People will likely charge their vehicles at home when EVs become much more commonplace but as yet, we are not seeing more exits or exit strategies. However we do think it will come, of course.”
Historically, fuel was the primary reason to visit a PFS, however Rodell points to other income streams such as ‘fast moving convenience’ that have grown significantly in recent years. “The high margins and extra spend within the stores allows operators to maintain profits while fuel becomes more expensive and will eventually protect operators from the prospect of fuel demand decreasing steadily towards 2030 and beyond. Large operators have been investing heavily into their retail offering within their top sites.”
Both Rodell and Cook agree that most potential buyers are looking for the same thing: “Buyers want sites that can be developed or repositioned for the future, to maintain relevance and profitability,” says Rodell. While Cook adds: “People want prominent sites that they are able to repurpose without a huge investment, and that are capable of supporting EV infrastructure if not immediately, then in the future. Then they should be looking for other income streams such as the ability to put in a brand franchise and hospitality or retail - like Euro Garages have done with Greggs, Subway etc.”
Meanwhile, Rodell believes sellers remain realistic re prices as they understand the current economic crisis, including higher costs and the squeeze on their customers. “Never has there been a more important time to use a skilled agent to negotiate between buyer and seller to optimise value,” he says.
Cook agrees, saying: “Sellers need a good advisor who will be able to understand both the vendor’s and purchaser’s business and where the opportunities lie for both parties.”
For buyers, Cook advises clients to think very carefully about the long-term potential of the site they are looking at. “Given the ongoing switch to EV they need to consider if their site is going to have medium-term demand for either existing or alternative uses. All clients should take expert property and consultancy advice because these assets and sites are complex with plenty of challenges - for example planning, infrastructure and investment to name a few. Their roadside location also does limit options whereas genuine experts with track records will know every market cycle, all the challenges and workarounds and every potential development or repurposing angle available.”
The good news from Rodell is that lenders continue to support both first-time buyers and experienced operators across specialist retail sectors. But he warns: “There is a greater amount of lender due diligence and emphasis on detail, making it essential to engage with a specialist broker.” Ross Road Garage (pictured below) was bought with help from Christie Finance.