The nature of Australia’s convenience retail industry is changing and responding to consumer needs.
The latest Savills Convenience Retail Market Update tracks the investment market for service stations, and outlines the latest trends and activity within Australia. Some of the insights within the report include:
- Key players in Australia’s convenience retail industry are continuing to expand their networks and the number of service stations increased in the 12 months to June 2018.
- Significant reinvestment in infrastructure, as well as convenience store layout and offering, continues to be a focus of all groups.
- Consumer demand for a broader range of convenience products has become just as important as the fuel offering.
Significant changes and key players across the Australian market
The market update comes on the back of several large-scale market announcements, including Viva Energy disclosing the formal launch of its Initial Public Offering (IPO) for its fuel business to be listed on the Australia Stock Exchange in June. This deal will see Viva Energy become the second only fuel retail business to be listed on the ASX, alongside Caltex Australia.
Following Viva Energy’s announcement, BP Australia confirmed that it would not continue with the proposed acquisition of Woolworths’ retail fuel and convenience business, which was originally announced in December 2016 and rejected by the Australian Competition and Consumer Commission in December 2017. Woolworths has now struck a new 15-year supply deal with Caltex and has said it will continue to pursue an IPO of the petrol unit in a deal that could be worth up to $2 billion.
Another major shift is Wesfarmers’ March announcement to demerge Coles from its group of businesses. The Coles spin-off will include Coles’ 806 supermarkets, 894 bottle shops (the Liquorland, Vintage Cellars and First Choice Liquor brands), 88 hotels and 715 Coles Express service station and convenience outlets.
A further game changer could be Caltex, which is reportedly looking at a sale and leaseback option for up to a quarter of their sites by value (approximately $500million). Caltex recently conducted a review into its convenience retail real estate and concluded that a total sale and leaseback process was ‘not financially compelling’, as the sale profits would be offset by the impact of leasing liabilities on the balance sheet. Instead, they are exploring a potential strategic real estate partnership with appropriately experienced partners.
What the future holds for the convenience retail market
We believe the convenience retail market has remained “relatively buoyant” on both an individual and portfolio sale basis but there has been significant new supply come to market nationally in recent months. This, in turn, is starting to impact the liquidity of these assets.
There remains a distinct correlation between the lease expiry, underlying land value and passing initial yield. The most prevalent investment sales in the market currently are recently developed sites with new long-term leases between 10 and 15 years.
For further insights into the convenience retail market, request a copy of Savills Convenience Retail Market Update: