Yields on petrol stations are touching 6 per cent as superannuation funds and property trusts join private investors in the scramble for assets.

Sales volumes peaked in 2016, with more than $400 million worth of service station transactions recorded across Australia’s eastern seaboard, according to a JLL analysis of the emerging asset class.

That total includes 21 properties sold in Victoria, 31 in New South Wales and 19 transactions in Queensland.

Regarded as a defensive asset class due to the non-discretionary nature of fuel sales and the stable demand profile of fuel consumption, the sector has recorded significant yield compressions over the past five years, the report said..

The average initial passing yield recorded on sales transaction across Australia’s eastern seaboard has compressed 97 basis points from 7.07 per cent in 2011 to a 6.09 per cent in 2017.

Victoria achieved the sharpest average initial passing yield of 5.15 per cent on assets traded in 2016.

The yields were a little softer in Queensland at 6.24 per cent and in NSW at 6.45 per cent.

Competition is still strong in Victoria this year, with yields on transactions at an average of 5.36 per cent.

“Whilst private investors have typically dominated the sector, self-managed super-funds, offshore investors and newly formed real estate investment trusts are becoming increasingly active,” said JLL’s Stuart Taylor.

Sale rates per square metre achieved on service station transactions have increased from an average of $1,180/sq m in 2011 to $2,050/sq m in 2017.

That represents growth of 12.3 per annually, said JLL’s Sam Baines. “Investors in this sector have seen significant capital growth in recent years.”

This year, Melbourne fund manager APN Property floated a petrol station property trust while Viva Energy REIT listed a year earlier.

The competition watchdog is reviewing BP’s proposed $1.8 billion acquisition of Woolworths’ fuel business, including 531 existing premises and 14 development sites

A number of themes underlie investment into the emerging class, including the retail expansion of service stations to include fast-food operations and convenience stores.

At the same time, the number of service station sites across the country has reduced to around one-third of the 20,000 sites that existed in 1970.

The JLL report addressed the potential challenge to traditional petrol stations posed by a turn towards electric vehicles, which still account for only a small proportion of new cars purchased.

Repurposing the existing infrastructure on existing service station sites to cater for higher electric car usage may be required in the future, the report noted.

“Regardless of a potential transition in the use of service stations, the need for a road side convenience will remain in Australia,” it said.

Extracted from Australian Financial Review.