Investors looking for higher returns are bypassing residential property in increasing numbers and choosing to put their money into service stations, new research shows.

Last year the total volume of service-station sales in NSW jumped 48 per cent compared with the previous year, from $118.6 million to $175.5 million, figures from Knight Frank found.

Several large operators – including Caltex, BP, Shell-Coles and 7-Eleven – own about 50 per cent of all service stations in NSW. But low interest rates and better returns than the housing market had ”enticed smaller private investors and self-managed super funds into the market, particularly in the sub-$5 million range”, the research found.

There had also been an upswing in new service stations built in the past few years after the industry went through a long period of closures.

Knight Frank’s director of service stations Jason March said there was now a ”strong appetite” for them among big and small investors.

“The appeal to investors in recent years has been underpinned by long-term lease covenants, with fuel companies providing stable income with relatively low costs associated with these assets,” he said.

“The demand for service stations will remain high, as competition in the sector continues to grow and investment yields remain attractive to developers and investors alike.”

NSW has the highest proportion of service stations in the country – at 30 per cent- compared with 22 per cent for Queensland and Victoria.

Mr March said the ownership structure of the service station sector was expected to change further over the next five years, with the recent purchase of Woolworths’ petrol stations by BP also set to shake up the industry.

“Coles and other independent operators are expected to increase their presence in the industry. In the short term, however, an interesting period lies ahead as BP’s purchase of the Woolworths service station business flows through and both established and new-industry entrants look to gain market share.”

Extracted from Commercial Real Estate.