C-store Property Prices Poised for Pick-Up

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C-store Property Prices Poised for Pick-Up

By Robert E. Bainbridge - 08/20/2012

Convenience store property prices are positioned to rise. Pretax profits and the CoStar Commercial Repeat Sales Index (CCRSI) trended up in the last six to 24 months, and more evidence is accumulating that convenience store real estate prices should see upward movement soon.

Real estate lending activity is recognized by experts as a leading indicator of property price trends. Commercial loan originations were up 64 percent in 2011 and up 86 percent in 2012, over the 2010 level. This is good news for property prices. The graph accompanying this column shows how commercial loan activity was increasing in the pre-bubble years and commercial real estate prices followed the upward trend. Then in 2007, loan originations abruptly started down. Commercial real estate prices also fell. Today, annual commercial loan originations are back at the market level of the 2002 to 2004 period.

Although we are not likely to return to the frantic lending pace of the bubble years, we are, without a doubt, now back in healthy lending territory. Real estate is capital intensive and requires unobstructed access to financing. Commercial lending reached a peak in 2007 and from there dropped 34 percent in 2008 and 83 percent in 2009. The slowdown in real estate lending prolonged the recession, causing property prices to drop. However, that lending slowdown appears to be over.

This year, one CoStar commercial property price index reached its highest level since early 2009. It has now improved by a cumulative 36 percent since the start of 2010. The rate of improvement has accelerated over the last several months. As CoStar reports, "The 6.6-percent increase of the Equal-Weighted Composite Index in May 2012 over its year-ago level was the largest such gain since before the start of the most recent recession in 2007. Growth in demand for smaller and lower-quality commercial property assets has caught up to that of the institutional-quality subset in recent quarters, as reflected in the uptick in pricing."

Convenience store property prices have yet to see a recovery. The median property price of a convenience store in the United States was $841,975 in the first half of this year. The median price was $966,977 in 2011, and $865,137 in 2010. Nevertheless, all the signs are pointing to rising real estate prices.

In the next column, we will look at convenience store property pricing trends in the big three Texas, California and Florida. Together, these three states account for more than one-fifth of all convenience stores in the United States.

Robert E. Bainbridge is an author, instructor and expert witness in the appraisal and valuation of convenience stores and gas stations. He can be reached at [email protected] or (541) 823-0029. Find more valuation information at www.cstorevalue.com.

Editor's Note: The opinions expressed in this column are the author's, and do not necessarily reflect the views of Convenience Store News.

Click here for more columns by Robert E. Bainbridge.