Retail News Blog

By: Ben Wilcox, MAI

The impact of the recession and financial crisis on commercial real estate has been widely reported. With securitized lending out of the picture and banks less able to lend, purchase financing has been more difficult to obtain and available in smaller quantities. This has led to a slowdown in sale transactions for commercial real estate. To compare how convenience stores have fared, the chart below shows the trend in volume of transactions for west coast convenience stores and service stations as reported by CoStar Group Inc.

Sales volume reached their peak during late 2007 and early 2008 as a number of oil companies rapidly liquidated stores. By mid 2008, however, lenders had begun to pull back, and rapidly increasing fuel prices made operators’ margins difficult to predict. Property transactions fell precipitously, and at the height of the credit freeze sales were off more than 50% (3^rd quarter 2008 vs. same quarter 2007). Sales have rebounded slightly since then, but 2009 is still on pace to lag 2008 by 26%. During the period, many oil companies were in the process of liquidating portfolios of stores, which has not only cushioned the fall in transaction volume, but also contributed to the peak sales volume in 2007/2008. Additionally, CoStar Group Inc. has expanded its geographic coverage over time, so these figures may understate the decline in volume.

Although the majority of convenience store sales involve owner-operators, price trends have correlated strongly with the real estate investment markets. Just as capitalization rates peaked for many property types in 2006, data show median prices peaked for c-stores at roughly the same time. The chart shoes median and quartile prices for west coast c-stores and service stations.

Following rapid price appreciation of 31% in 2005 and 18% in 2006, median c-store prices have fallen for three straight years. Nevertheless, the fall has been muted, amounting to a decline of 16% since 2006.

Note that the lower quartile prices have held relatively steady while upper quartile prices have fallen the most. This is likely and indication that few owners of high-quality stores are willing to sell in a distressed market

In conclusion, data indicate that c-store values are falling. However, the decline appears to be less of a sudden correction than a gradual adjustment ongoing since 2006. Anecdotally, many owner-operators have found purchase financing difficult to find. Undoubtedly, this has hurt transaction volumes, but pricing has held up fairly well considering the pressure mounting on other sectors of retail.