After a year of big merger and acquisition stories Euro Garages with EFR (European Forecourt Retail Group) and MFG’s purchase of Synergie Holdings and Roadside Group to name just two the verdict on the forecourt property market is in. Last year was a good one demand is still strong, but it’s a lack of supply that’s the problem.
Paul Taylor, senior director in GVA’s Automotive and Roadside team, says: "Perhaps unsurprisingly, the four largest groups have been the most acquisitive, buying smaller groups and with a focus on numbers, with a number of off-market deals. In terms of targets, there’s been a greater focus on acquisition of new development sites, but also a clear interest in delivery of non-fuel sales such as the provision of coffee, hot food or car wash services."
David Collins, partner at Adlers, gives his view: "The forecourt property market remains very strong at present with rising values due to a continuing shortage of petrol filling stations (PFSs) coming on to the open market. There are still very few opportunities to acquire good quality PFSs on the open market, making it difficult for smaller operators to expand their businesses. Larger operators are increasingly turning their attention to site development as a way of facilitating expansion."
John Docherty, surveyor at Graham & Sibbald, says that both buyers and sellers are looking at off-market deals. "In addition to good performing sites, purchasers are looking at sites with low volumes that need investment.
"Operators have been able to maintain strong fuel margins which, coupled with the fall in oil prices, has resulted in poor sites becoming more efficient."
He says his company has a number of retained parties, which are actively seeking sites and are looking at opportunities for new-to-industry (NTI) sites, as there is a continual lack of supply of operational sites.
But Rapleys’ associate, Mark Frostick strikes a note of caution: "Yes, we’ll see more NTI, out-of-the-ground sites, but the problem is the cost of them, what with the price of the land and the building etc."
Docherty adds that in addition to the NTI sites, he’s seen decommissioned/derelict PFS sites being brought back into operational use by dealers.
"We recently acted on behalf of a purchaser of such a site within the Glasgow area, which required considerable investment, but the vendor was able to achieve a very good price for the site. And, to show the variety of demand, we recently completed the sale of a site in rural Aberdeenshire, which has strong local super/hypermarket competition. This tells us that even where there is strong competition, demand for sites is good and sites are achieving good prices."
Is the price right?
But what is a good price? Steve Rodell, managing director retail at Christie & Co, says their agency business is very successful and they sell 90% of the forecourts they take on as long as they are appropriately priced.
He explains a scenario: "You say you want £1m for your site. And I say comparable sites have gone for £750-800,000. At that point, you say you’re not interested in selling. I then explain that, as the forecourt market is so heated right now, supply and demand rules say sites are doing better than they should and I could get £850-900,00 if we’re lucky. And the site goes up for sale."
He says that basically Christie & Co gives guidance then lets the market dictate but, as with everything, you sometimes have to manage expectations.
"We get cases where the retailer has not been in business for very long no more than five or six years and thinks his business is already a goldmine. But alternatively we get cases where retailers have been in the business for much, much longer and we have real trouble persuading them what sites are worth today. They’re old school and think the prices we are talking are mad.
"They say to us that the price of a site that’s for sale cannot possibly be right but three months later once we have sold it they then ask us to do an appraisal of their business. There are definitely two schools of thought on price," he says.
"The problem for buyers can be that sellers have seen other deals happen. They’ve had their appetites whetted so have very, very high expectations. But to sell at a good price, yours needs to be a tip-top site with growth potential."
A lot of Christie’s work is in formal valuations. "I’m pretty certain that we have the largest team of chartered surveyors, who are all registered valuers, which means we can do bank valuations," explains Rodell. "We have representation on all of the bank panels and the benefit of us being involved is that we usually know about the operations and the sites so we are always already some steps ahead." Indeed Rodell says petrol retailers often ask banks to use Christie because ’they know what they are talking about’.
Collins believes sellers are fairly clued up on values, but adds: "Sellers of poorly performing sites and those in unattractive locations sometimes need to be advised that their expectations are unrealistic."
Of course, if you’re looking to buy or sell, it can pay to have a good relationship with the agents. "We know the market, who the players are, and who wants to buy what," says Rodell.
Frostick agrees that it’s important to be on an agent’s books: "If we’ve done a deal together before then we’re more likely to do one again so it’s important to stay in touch."
Thinking of selling?
When it comes to selling, all the property experts says the same thing: that’s it’s vital to have good accounting and operational records available.
Collins says: "I would put it as simply as ’What would you like to see if you were a buyer?’. Having an environmental survey available can also be helpful to avoid problems when the sale is at an advanced stage. Since there are few properties available and very high demand, most specialist agents will know who the likely buyers are for a specific site and it may be beneficial to offer the property to a limited number of selected parties."
Rodell agrees: "Talk to us in advance," he says. "Then prepare your assets for sale. Do any jobs that need doing such as painting windows or repairing the fence out the back and then get your management information together. You need good-quality management stats, which can show your site is trading at a consistently good level."
The detail is important says Docherty: "You need to have detailed information for your sites, including up-to-date fuel volume information (three years’ worth), fuel margins achieved, breakdown of other sales achieved as well as detailed information on tanks, ages, capacities, construction etc."
Collins says sellers of good sites are likely to be inundated with offers so it’s important for buyers to comply with the terms of any formal bidding process. "Proof of availability of funding is of paramount importance since it will give the seller confidence."
Frostrick agrees: "By having money you’re seen as being credible."
When it comes to buying, Christie’s Rodell says operators should keep speaking to their local agent because sometimes deals are done locally before they reach the company’s website.
Docherty says it’s challenging, because of the lack of sites coming to the market. "Many sites are sold off-market either by independent dealers or by the oil companies. Therefore, a buyer would need to meet with us to tell us what they are looking for as we know most of the operators in the UK and have an indication of their future disposal strategies and can identify potential purchasers at the earliest opportunity."
Collins explains that sometimes it can be a simple matter of luck speaking to the right person at the right time. "Keeping in touch with the specialist agents in the market will be helpful but equally discussions with others in the industry can often lead to opportunities. Buyers will need to be patient but persistence often pays off in the end."
GVA’s Taylor believes rising values may bring more sites to the market and there’s likely to be further consolidation.
"But we expect to see a greater focus on maximising existing estate assets, given the lack of opportunity to acquire more sites. Profitability may also be affected by the rates revaluation and rising National Living Wage."
Frostick says Euro Garages has done very well with its different profit centres. "These are a relatively easy way to generate income. If you’ve an old car wash, for instance, you could think about converting it into a Starbucks drive-through."
As for Brexit, the agents don’t seem too bothered at the moment as any real change still seems some time away. "Brexit means a substantial fall in the value of the pound which makes the UK a very attractive place to invest," says Rodell, "We now have an Asia desk because some companies have a serious amount of cash to spend and the UK is a very good value-for-money place to invest at the moment."
The general feeling is that whatever happens re Brexit, people will still be driving their cars and buying fuel.
barber wadlow forecourt property value Indices
Lack of supply is exasperating demand in the forecourt property market says Adam Wadlow, director at Barber Wadlow. As a result, the firm’s Forecourt Property Value Indices is reporting a record high. The Indices (developed in association with Experian Catalist) recorded a nine per cent value increase in 2016, the fifth consecutive year of growth.
"Values have now increased by 62% since the last trough in 2011 and the indices is now at a record high, exceeding the 2007 peak," explains Wadlow. "The increase in values has been achieved despite a sharp slowdown in the number of sites bought and sold. Barber Wadlow research estimates a reduction of 86% with only circa 200 sites transacted, by comparison to 1,375 in 2015.
"Lack of supply rather than lack of demand is the reason for this reduced market size, now that oil companies have completed their divestment programmes and the only sizeable acquisition opportunities are independent dealer groups."
Rates revaluation time
A business rates revaluation is due to come into force in England, Scotland and Wales on April 1, which will move the valuation base date from April 1, 2008 to April 1, 2015. This may lead to large shifts in liability for some.
Paul Sewell, managing director at MUA Property Services, explains: "New Transitional Relief (TR) regulations are being introduced. These smooth out the larger shifts and distort the UBR x RV calculation. TR is self-funding, so usually no-one is happy; it can act as a penalty for some, while gainers are usually unhappy with the percentages allowed." Sewell adds that there will also be a new three-stage appeal system in England called Check/Challenge/Appeal (CCA). "No-one knows how this will work out in practice, but early indications are that it potentially increases the appeal burdens and costs and delays for ratepayers. It appears to be a naked attempt to deter appeals. Specifically, there will be an appeal fee of up to £300 for the first time, and generous time limits for VOA consideration of the first two stages could mean up to 38 months’ delay before even reaching the queue for an Appeal hearing. Hopefully a lot of cases will be resolved before the Appeal stage."
Sewell says the petrol station scheme for 2017 is very similar to that of 2010. "Shop and car washing is unchanged, although fuel has been tweaked slightly upwards. For sites trading exactly the same as in 2014 as they were in 2007 (the ’Antecedent Valuation Date’ years), they may expect to see RV increases of 5%-10%. Any wider variations will undoubtedly be down to a change in the trading data (either actual or assumed)."
He says MUA’s initial findings from the draft 2017 list is that some 75% of sites should proceed to at least the ’Check’ stage of the CCA. However, assessments can go up as well as down, so forecourt operators are urged to appoint advisors who will inspect and value their site prior to ’Check’.