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.


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.


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 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.


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.


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.