Shrinking Servo Network Heralds Development Prospects

Gone are the days when the humble servo pie was a foundation of every brickie’s diet. Contemporary service stations are fewer, flashier and increasingly targets for property development , experts say. The pies are still there, but they’re more often found paired with barista coffee and quinoa salads. Larger chains are partnering with high-end quick service restaurants or developing their own proprietary hot food service. At the same time, the oil majors have been leading the charge in consolidating the industry and strip-mining their property portfolios to sell off sites that no longer make sense. In August, Ampol announced the $1.1-billion acquisition of EG Australia. Meanwhile, the fuel giant continues to roll out a site rationalisation strategy, selling off 15 sites in the first half of the year. In March, Viva Energy bought the 92-store Liberty Convenience. A year earlier, it acquired the 195 fuel sites, 31 stand-alone stores, and 278-strong leasehold network of OTR Group. While the EG Australia deal is subject to ACCC approval, with a decision expected mid-2026, the regulator has so far proven amenable to waving through consolidation in the sector. Property players are getting involved in two ways, according to IBISWorld analyst Jayson Cooke. The first is the activity of capital markets, with real estate investors looking to acquire income-focused sites and lease them back to retailers . The second is that “high-value land, metro land, can actually be sold to developers for alternative use once the retail vacates … but that can take a long time, due to the regulations surrounding how the soil is affected by fuel operations”. “You have to predict whether it ’ s going to be profitable because if it ’ s going to take years to redevelop, you ’ re hoping the market is going to reward that time you ’ re taking.” The key driver to understanding the changes in the fuel retailing industry, according to Cooke, is the poor return that operators earn on fuel. The viability of a fuel station site depends on customer throughput and dwell time, rather than volumes of petrol or diesel sold. “It’s a high-volume, low-margin industry. You make a few cents per litre on the actual fuel sold,” Cooke said. While there’s some confusion about the exact extent of Australia’s service station network, Cooke says that different government figures show sites have declined from about 20,000 to 7000 or 8000 over the past 50 years. The industry is trying a number of different models, according to Cooke. Some operators are toying with different franchising or ownership models for their sites, while others are playing with market segmentation. The winning models, and what that means for the majors’ property portfolios, are going to evolve heavily over the next few years. “There are many, many playbooks … it’s going to be a mixed landscape.” ▲ Some sites may continue with an emphasis on retail, while others will sell to developers. Ampol, for example, is leaning heavily into its unmanned UGO strategy. Of the roughly 500 EG sites, Ampol expects to convert about 160 into standalone self-serve bowsers without a retail offering, optimising the cost base rather than the top line. With a $300,000 fitout cost, the payback period is only a year and the retail building is simply shuttered. The growth in electric vehicles may save some sites too, with charging instead of fuelling meaning longer dwell times. Alternatively, EV motorists may skip stations entirely, preferring to charge at home or work. For those sites which can’t cut it, even with near-zero labour costs, the best option is often to sell to a higher and better use. Early partnerships yield value GHD senior technical director Andrew Kohlrusch says that metro petrol stations can be gold mines for savvy developers hungry for land. “Generally, the service stations are in fairly popular areas and so there’s quite a demand for apartments. “There was a series of projects we did for one of the oil majors about three or four years ago and all of those sites were in spots with high population density. There’s one in Bondi and there was one in Rose Bay and others in small strip malls. “If it’s in a populated inner city, in the inner west or eastern suburbs of Sydney, for example, the land value is astronomical.” A standard station is about 2000sq m, according to Kohlrusch, but sites vary dramatically in size and characteristics. While remediation is essential, and can be expensive, vendors are sometimes willing to contractually extend their participation beyond their regulatory obligations, Kohlrusch says. “It depends on who’s knocking on their door, whereabouts they’re looking to sell properties, but it certainly is advantageous [to partner].” Remediation work can be arranged to incorporate the excavation of basements for residential developments, for example, if developers and vendors come together early enough in the process. ▲ Excavation to a depth of 3m is suitable for remediation and for basements of residential developments, Kohlrusch says. “One of the sites that we’re working on, they knew who was going to purchase the site. So there was an endpoint already defined not by the remediation DA, but by the future development DA,” Kohlrusch said. Dig deep for liability risks Kohlrusch says that assessment and remediation are expensive but essential to a safe transaction. “I’d say that a quarter of a million bucks is the sort of figure that you need to do as a starting point. If you can get it for less than that, you’re very lucky that the tanks haven’t leaked.” Contamination which affects neighbouring properties, or even locating contamination, can form additional challenges. Some buyers are uncovering unrecorded kerosene tanks from the 1950s, Kohlrusch says. “In my experience, most of your majors try to do their homework as part of the purchase and sale of properties. It’s probably harder for the one-man bands because they don’t have those resources to spend $30,000 or $40,000 on doing that assessment.” Conveyancers with experience and specialisation in the field are crucial to protecting parties to a transaction. “A lot of good consultants do a lot of good work but sometimes people stray outside the swim lanes … when [contracts] are regarding contamination, it can be very challenging. That’s when things go to court, unfortunately.” Liam Schofield, a lawyer specialising in conveyancing and property at Baker Love, says there has been a minor but noticeable uptick in former service station site transactions in the past six months. “One of the biggest issues we see is financing these deals—many banks want nothing to do with sites that may have contamination issues, and for those that do, it may be on unfavourable terms or reduced LVR.” Schofield recommends that buyers do their own due diligence, instead of relying on any reports, assessments or certifications provided by a vendor. “I relate it back to: if you were buying residential property and a vendor gave you a pest and building report, you would always still get your own. There is no way to know for sure that their report is accurate or complete.” While liability may initially lie with the person who caused the contamination, if that contamination is discovered decades after the fact, Schofield says that there may be little hope of identifying and locating whoever caused the contamination. “For a developer with sufficient capital to be able to remediate, develop and then sell, it still might be a good investment. But they would need to have certainty regarding the costs of remediation—you wouldn’t want to be outlaying substantial capital on the property purchase, only to have your budget blow out because the remediation costs are a lot higher than expected.”

Shrinking Servo Network Heralds Development Prospects

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