Hot skyrocketing real estate market is drying up supply of gas stations
Measuring profit in pennies can’t compete when the land is worth millions of dollars
Real estate prices are today’s dominant news. Whatever the malady ascribed to Canada’s inflated land values — the possibility of a real estate bubble destabilizing our fragile economy, the impact on home affordability, the plight of the Millennials shopping their first home — the average price of a Canadian home (now said to be well over $1-million for single-family dwelling in Toronto and Vancouver) is never far from the front page.
Short of the thought of Donald Trump’s rather impulsive thumb on the red button, nothing disturbs Canadians quite like the conundrum of whether they should be celebrating or lamenting the sky-high value of their homes.
But there are yet more twists to the effects of low interest rates as rampaging real estate prices reach far beyond simple home affordability. To wit: Soaring home prices are putting gas stations out of business. And in so doing, they are accomplishing what years of government subsidies have so far failed to do: making internal combustion cars inconvenient enough to promote electric vehicles.
While much has been written on the demise of the gas station — there were as many as 20,000 in 1990, while fewer than 12,000 are operating in Canada today — attributing their demise to the rising popularity of electric cars, as Macleans and the Financial Post do, is vastly exaggerating the success of the environmental movement.
In fact, as of the beginning of this year, there were fewer than 15,000 electric cars registered in Canada, a mere pittance compared with more than 25,200,000 gasoline-fuelled automobiles still prowling our roads. EVs’ 0.06 per cent share of the Canadian automotive fleet is hardly the reason that almost half of our gas stations have gone out of business in the past 25 years.
Nonetheless, gas stations — especially in big city downtown cores — are disappearing, their dwindling profit margins and the soaring value of the property they rest on making their continued existence untenable.
Finding a pump in Toronto’s Bloor Street-Queen’s Quay corridor is getting ever more problematic. Chevron recently announced the pending sales of five of its Shell stations in Vancouver and it’s not hard to see why. Thanks to Vancouver’s insatiable appetite for condos, one of Chevron’s locations had its value reassessed at $32.8 million, making a worthwhile return on capital from the pennies-a-litre profits from pumping gasoline all but impossible. Only Montreal clings to a convenient number of downtown gas stations, and one wonders how long that can last given Quebec’s (relatively) booming economy.
Nor is this problem confined to Canada. In San Francisco, for instance, there are 40 per cent fewer gas stations than there were a decade ago, ABC7 News reporting that literally “hundreds of gas stations have closed across the Bay Area” since 2000. The TV station says that’s mainly because the average net profit of five cents per gallon can’t compete with San Fran’s soaring real estate market.
According to the New York Times, there are now fewer than 50 gas stations in Manhattan — despite car registrations increasing by 100,000 in the past five years — and fewer than 10 below 96th Street. The reason? Look no further than the BP station that recently sold for more than US$25 million, only to be replaced by a luxury 56-unit condominium.
Even in America’s suburbs, the lure of filthy real estate lucre is putting gas stations out of business.
“Properties are just worth too much money,” R. Steven Embrey, general manager at Eastham’s Auto Service Center, told the Washington Post before he stopped selling fuel for good at a gas station in Bethesda (a Maryland suburb of Washington, D.C.), which had been in business since 1929.
Nor is it only mom-and-pop gas stations getting squeezed out of the retail business. Last March, Imperial sold off 497 of its Canadian Esso-branded gas stations ostensibly, it was reported, to fund its expansion in the Kearl oilsands in northern Alberta. Nonetheless, one can’t help but think this profit-versus-real-estate-value conundrum played a large part in its decision. The Globe and Mail said the sale brought in some $2.8 billion, which works out, for those slow on their calculators, to $5.6 million an outlet, a number extremely tough to ignore when you’re making pennies on the litre.
Indeed, it’s perhaps even more telling who bought the stations. While a few were bought by fuel distributors — Parkland Fuel Corp., Harnois Groupe pétrolier and Wilson Fuel Co. Ltd. — the vast majority were bought by Couche-Tard (one of the world’s largest convenience store chains and originally based in Quebec) and 7-Eleven Canada. As Dan McTeague, senior petroleum analyst for GasBuddy.com, says, “the fuel retailing business is now so unprofitable that it has become nothing but a loss leader for convenience stores.”
What makes Imperial’s sales all the more ironic is that the large oil companies that were using low retail margins to encourage mom-and-pop retailers to leave the business are now finding themselves squeezed, with the number of gas stations under the direct price control of major oil companies barely more than 10 per cent. Nor are convenience stores the only retail outlets taking over the retail gas business. Big box stores, especially Costco, are the fastest growing part of the segment.
Whether they are, in fact, being eliminated or being moved to suburban retail outlets, downtown gas stations are slowly disappearing. And while there are still enough to fill the needs of motorists — the Greater Vancouver area, for instance, still boasts about 70 locations with pumps — it is nonetheless less convenient to fill up than it once was.
It’s ironic that, after years of promoting electric cars through subsidies both direct and indirect, it is the politician’s greatest fear — a real estate bubble — that is also their best weapon for promoting the adoption of emissions-free automobiles, at least in downtown cores.