If you’re thinking of selling your forecourt, now is definitely the time. The oil company rationalisation is over and there are fewer and fewer decent sites up for grabs. Unfortunately, if you are a buyer this means you’ll be paying more than ever before.
Christie’s associate director corporate retail, Allen Shepherd, reports some phenomenal prices: “We’ve had quite a few deals at £1m-plus and some in excess of £2-2.5m – even the worst sites out there are selling for £300,000 just for their land value.”
John Coulling, associate director, motor trade department, Lambert Smith Hampton, adds: “There are more buyers than sellers out there, but it’s still a risky business and we’ve still got the situation where sellers are looking for high prices. Hopefully, this will improve. But if it’s the right site then buyers will pay the money for it, they have to increase their bid or they’ll end up with nothing.”
David Collins, a partner at Adlers, says there has been very little in the way of what he calls ‘open market transactions’. “Oil companies have been disposing of large portfolios of sites which do not come onto the open market. In some cases the purchasers are backed by property companies and investors. The property companies are looking at long-term development potential for alternative uses while the investors are looking for a secure income flow and also the benefit to add value to the existing operation and achieve additional rent as a result. In other cases individual sites or groups of sites are being sold to dealers with supply agreements.”
He says there appear to be two distinct sectors at the present time: “Firstly, there are sites being sold to purchasers who will continue to operate them. Secondly, there’s the investment sector where many different purchasers are acquiring filling stations where previously they may have acquired other investments such as shops or offices. It is evident from these transactions that if the filling station is secured with a lease to a good covenant, the yields obtainable can be very strong, providing high re-sale values to the investor. These deals are often on the basis of sale and lease-back arrangements where the operator creates a new lease and sells to an investor at a pre-agreed price.”
Collins says that other than the group disposals, the market has been fairly slack in the past year. “The market is polarised between the high-volume sites with good potential. These sites rarely come onto the market. At the opposite end of the scale, sites with a throughput of less than four million litres and modest shop sales with little potential for improvement are very difficult to sell unless they are priced very competitively. However, there is still a surprising level of demand for these sites from individuals. The principal problem is funding, where bank valuations do not meet the agreed price or the vendor’s expectations. Depending on the location, the site may be worth more for alternative uses. Sites that have potential for large convenience stores in good trading areas will remain in the oil companies’ or food retailers’ control.”
Within the housing market, regional location dictates the price but when it comes to forecourts, pricing differentials are more likely to be based on the attributes of individual sites. Collins says that generally speaking, sites in urban areas among chimney pots are always in greater demand and so command higher prices. “There are many other factors affecting value such as local competition, including supermarket forecourts, age of tanks, local fuel pricing and retained margins, and 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.”
When it comes to selling, Collins says the obvious advice is to present the site at its best – with a clean, well-stocked shop, a clean forecourt and no obvious maintenance issues or damage. “More importantly, sellers should not be unrealistic in their price expectations or the length of time required from the commencement of marketing to the conclusion of the transaction. In most cases, bank valuations and environmental surveys will be required. We recently sold a site in Norfolk where the first deal fell through due to a low bank valuation. The subsequent deal succeeded at a figure very close to the originally-agreed price simply due to another surveyor assessing the site differently. Furthermore, there can be variations in environmental advice. Sadly this creates uncertainty and much patience is required to see transactions through to a successful conclusion.”
ALTERNATIVE USE
Alternative use is the industry trump card in any site deal, with most buyers keeping the idea at the back of their minds should their business go belly up. Adlers’ Collins confirms that a large number of sites are being sold for alternative use: “We have recently offered a package of sites on the market for BP, which generated tremendous demand principally from residential developers but also from the retail sector. Housing Associations are bidding strongly for sites like these in urban areas.”
Of course not every seller is keen to have their forecourt knocked down and the site covered in houses. Keith Mowbray has had his Maypole Service Station, in King’s Heath, Birmingham up for sale for a year now. The reason he has not sold it yet is that he wants to sell it on as a petrol business. But time is marching on and soon he may have to make a tough decision.
“I am currently negotiating with three individuals – two property developers and one party that wants to continue running the site as a forecourt. I am optimistic that the petrol party deal will go through as a sale – we’re at the stage where they want to buy it, but they’re waiting on the bank which is being very slow. If they come back to me and say they can’t afford the price I do have a contingency plan – to do a deal with them on fuel sales so I maintain an interest in the site. If that fails then I will have to turn to the property developers – I am at a really critical stage. I will be devastated to be the man who sends the diggers in but it might have to come to that.”
But even with alternative use there can be problems. Christie’s Allen Shepherd says getting planning permission can be tough, depending on what the site will be used for. “We’ve found the number one preference for alternative use of a forecourt site is for flats or houses followed by surgeries or banks – something that provides a service for the local community. Third is a restaurant and last is a c-store because it’s a massive conduit for traffic.”
Mention the words ‘planning permission’ and you enter the realms of local authorities and each seems to have its own way of dealing with applications.
Pity Graeme Johnstone, property director at Spar wholesaler the Henderson Group, in Northern Ireland, who reckons planning restrictions are worse there than on the UK mainland. “We’ve got a difficult planning situation here with a number of new draft area plans causing us problems. We’re now looking at a planning time-scale of 12 months – the three to four month time-scale that operates on mainland UK is unheard of here. The situation makes it very difficult to buy a site subject to planning permission.”
Hendersons operates 42 forecourts at present and the company is keen to acquire more. Says Johnstone: “We have strategic targets for acquisitions but we’re not willing to disclose them. It’s fiercely competitive over here because now we’ve not only got the local competition but national competition too, with Asda taking over the Safeway sites and Tesco matching them on fuel prices. But our commitment to develop the forecourt side of the business is demonstrated by the fact that we have an in-house property acquisition manager whose sole purpose it is to find fuel and dry sites, both greenfield, brownfield and acquisitions.”
According to Christie’s Allen Shepherd, there are pockets of the UK where there’s a lot of activity. “In the south west, Smilestores is very acquisitive on the forecourt front and the Lakeside Group is looking for more sites. There are a lot of groups operating in the north west, so sites are very popular there. Also there’s a lot of movement in the north east and the south but the Midlands are static.”
If you’re selling, Shepherd advises you to get outline planning consent for extending your store – because that’s what buyers will be looking for. And if you’re buying he says it’s important that you check the tanks are good and that you look very closely at the fuel supply agreement.
Lambert Smith Hampton’s John Coulling says buyers should always obtain an environmental survey: “They need to do this just to make sure there’s nothing nasty underground and they should also bear in mind the Tupe – the Transfer of Undertakings (Protection of Employment) Regulations 1981 – because they could mean you need to take on existing staff on the same terms and conditions under which they already work. Buyers also need to look for a reasonable area in which to expand the shop – either by extending it or moving into the back room area. If there’s a shop already there on the site then planners do usually allow some sort of extension – dependent on deliveries, highway safety and customer parking.”
Shepherd concludes by saying he expects to see a strong market performance in 2006: “We’ll definitely see more sites run as c-stores with petrol as opposed to fuel retailers – convenience is very profitable and will therefore be very hot in 2006.”
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