Commercial Investment Real Estate Winter 2020

INVESTMENT ANALYSIS By Tom Hershey GAS STATIONS FUEL INVESTMENT The 1950s service station is long gone, but the sector’s outlook is bright thanks in part to diversiﬁ ed revenue streams. G high pool margins, meaning the profit be- yond the cost of fuel, according to Bill Gilm- ore, a sales associate with Coldwell Banker Commercial NRT. Gilmore, who specializes in pad sites in Southern California, expects the trend to endure for the foreseeable future as convenience stores and grocers vie for cre- ative revenue sources from fuel. Fueling stations and convenience stores remain popular among investors, with more than $2 billion in transaction volume each of the past six years and nearly 4,000 properties changing hands. Additionally, cap rates remain favorable, averaging above 6.5 percent nationwide. Industry trends, however, are impacting the way in which investors and developers look at the future of this property type, due to the increasing popularity of hybrid and electric vehicles and looming shadow of autonomous transpor- tation. Nonetheless, consumers are driving more than ever, despite high gas prices. The market, with $650 billion in total sales, near- ly 40 percent of which is not at the pump, is rapidly changing for fueling centers. Even with the rise in electric vehicles and broad gains in fuel efficiency, gas stations still cover all corners of the U.S. However, gas-only stations have dwindled as consum- ers focus more on convenience and services. Fuel retailing has undergone a transforma- tion, shaping the views of developers and investors. Non-fuel sales, which are typically more profitable, are major drivers of change. rowing up in a small town on the East Coast, I saw the corner service station as a refuge where the neigh- borhood kids could hang out and chat over an ice-cold soda. Our parents trusted the mechanics, and everyone knew each other’s names. Fast forward to today, and small fill- ing stations have all but disappeared, largely replaced by huge chains. Service bays have been supplanted by convenience stores, fast- food chains, and even roadside stops that resemble department stores. Considering these trends, why would gas stations appear as attractive investment opportunities? For operators, grocers, and chains, gas station investments have gained momentum in recent years, bolstered by 14 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE WINTER 2020

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