SERVICE
STATIONS - FACTORS AFFECTING VALUE
A large component of value of a service station is determined by the
amount of passing traffic and therefore, it should have good vehicular
access. The best location is on or near a busy road and/or in an area
with dense population.
As with hotels, a new
service station in the outer suburbs may have the advantage of much
greater potential turnover because of the growing population but the
potential is subject to high risk because of the high probability of
new competition in the near future. On the other hand, an established
service station in a middle or inner suburb may have a smaller
potential market but it's current turnover is safer as there is less
likelihood of new competition.
Therefore, service stations in the outer suburbs have a higher
capitalization rate than those in the inner city areas. However, as
will be shown later, it is very difficult to use the capitalization
method for the valuation of service stations.
LAND USE CONTROLS
The ideal location for a new service station, on or near a busy road,
may be difficult to achieve because of planning controls and
restrictions. If the site is zoned for service station use for example,
in a new shopping complex, there is little problem. However, potential
service stations in or near residential areas are a "contentious" use
(for example, a "designated development" under s4, Environmental
Planning and Assessment Act 1979 (NSW)) as they are "traffic
generators".
They are often opposed by traffic authorities, traffic police, local
councils and resident action groups.
Because the approval
for new service stations is becoming more difficult, existing and
established service stations are more valuable. The most difficult and
contentious service station land use is for a 24 hour supermarket/
service station within or near a residential area.
Problems also arise where there is a shortage of the zoned land. For
example, the courts have refused applications for service stations
within industrial areas where, in the court's opinion, there is a
shortage of industrial land within that locality.
NON CONFORMING USE
A service station may
be a "non conforming" use. If the service station ceases operation, the
right to use the land as a service station may be lost.
Non conforming uses are protected under local schemes and the central
legislation for example, s127, the Environmental Planning and
Assessment Act 1979 (NSW). There is a distinct possibility that the use
would be discontinued under the rationalization and upgrading campaigns
of the oil companies. For example, a change from a service station to
service station/supermarket will most likely, not be allowed as a
continuing use. However, existing use rights can include some other
uses - Randwick Municipal Co v Simpson, CA, 10.9.82.
PROBLEMS WITH THE VALUATION OF SPECIFIC USE BUILDINGS
Service station buildings, particularly the car service and petrol
filling areas are a very specialised land use. Therefore, those parts
of the station that are not easily converted to alternative uses suffer
the greatest amount of depreciation. However, there have been examples
of successful use conversions particularly to other "drive in" uses
such as supermarkets, car parts, fruit markets, car servicing, and
drive in restaurants. Sales of obsolete sites for alternative uses are
good evidence of the land value under the concept of opportunity cost.
FUNCTIONAL OBSOLESCENCE
The rate of functional
obsolescence
of station improvements is high, largely through new technology and
design. For example, new and more efficient pumps, a more attractive
design, better layout, more functional layout, a need for larger tanks
and changes in the architectural style.
ECONOMIC OBSOLESCENCE
Economic
obsolescence
is depreciation caused by factors external to the service station site.
For example, changing road routes, new traffic lights, the construction
of medium strips, new bypasses, demographic changes to the
neighbourhood, and zoning changes.
HIGHEST AND BEST USE
The question of highest and best use
is a difficult question for service station sites as there is no or
little free market forces within the industry. It is extremely rare for
an oil company to buy another's station. However, evidence of highest
and best use can be garnered through the examination of the industry.
For example, there sale vacant land to oil companies for the purpose of
building new service stations is evidence that the industry is
expanding and therefore, it can be assumed that an existing service
station in that locality is the highest and best use.
Similarly, if an oil company has just spent a large amount of money in
upgrading an existing site it can be assumed that the service station
is the highest and best use.
On the hand, if there
is evidence of "rationalization" in the industry for example, the
closing down of smaller stations and the expansion of larger stations
then, unless the subject station is one of the better and larger sites,
its use as a service station may not be the highest and best use.
Although difficult, the determination of highest and best use is most
important as the answer will ultimately determine the market value of
the station.
MEASURE OF VIABILITY
The sale of petrol is still the most important single source of income
for company owned service stations. However, there is a trend towards
service station/supermarket stations with late night, 7 day opening
hours for example, Ampol's Road Pantries and BP's Superserves.
The industry was
subject to a Royal Commission in 1973 which resulted in the Petroleum
Retail Marketing Sites Act 1980 (NSW). This act limited the number of
sites that oil companies can both own and operate at a given time and
further restricts land use. The industry has also been subject to an
inquiry by the Trade Practices Commission; Price discrimination in the
petroleum retailing industry, May, 1980, AGPS, Canberra, 1980.
The price of petrol to the operator is not a good measure of income
because of the discounting and rebate system. Different discounting
practices, together with different hours of operation, can greatly
affect the reliability of monthly turnover figures and makes
comparisons difficult. The "rent" paid by the operator/lessee is not a
market rent (BP Australia v Valuer
General,
Land & Env Ct NSW, June 1974, unreported) and therefore, cannot be
used in determining market value. However, in NSW under the Petroleum
Retail Marketing Franchise Act 1980 lessees should not receive rebates
or incentives on fuel sold. Because of these reasons, the use of the
capitalization method is not recommended as it is too unreliable.
4