How Will COVID Affect Gas Station/C-Store Values?

The COVID crisis has hit many industries hard, and the gas station/c-store industry has not been spared. Many operators are in survival mode right now, trying to cope
with huge volume losses at the pump and inside stores. For March and much of April, excellent fuel margins made the volume loss a little easier to bear, but those
margins are starting to erode and the reality is that the industry may be in for a protracted double-digit percentage volume loss.

This is obviously an operational and strategic challenge, but what is the effect of COVID on gas station/c-store valuations? That picture is a little more nuanced. While
widespread losses of 40%-50% are certainly not ideal, the industry is faring a lot better than some other industries. If we were grading commercial real estate by industry on a curve, gas stations may actually be in the A/B range, where industries like restaurants, lodging, concert venues, fitness centers, and movie theaters would be solidly in the D/F range

Gas station/c-stores are obviously essential businesses. We always knew that they are fairly recession-proof. Now we also can see that they are also fairly resistant to disasters. People will almost always need fuel and store items. If we get to the point where these are not necessities, then we are talking about a massive worldwide calamity that makes the coronavirus look like a little cold.

So, much as investors in the financial markets flee to safe havens like US Treasuries and gold when things get ugly, we could well see commercial real estate investors moving into a “safe” industry like gas stations. Combine that with extremely low interest rates and banks that do not appear to be turning off the loan spigots as they did during the Great Recession of ’08 – ’09, and we will likely see gas station/cstore values stay fairly steady.

This does not mean things won’t be bumpy. As Oil Express reports in its May 4, 2020 issue, M&A business in the industry appears to be slowing down for larger deals. They note that smaller chains and single store sales remain relatively strong, and that is consistent with what we are seeing in our transactions at CSI. And valuations pre-COVID were at all-time highs. It would not be unreasonable to assume that they will come off those highs at least a little until we really understand what a post-COVID world looks like.

We certainly would not recommend that someone put their gas station sites on the market right now unless it were necessary, but we also expect that when things calm down the demand for these sites will still be there.