At least 5% of UK petrol stations are at risk of closure in the next five years if the current valuation assessment system for Business Rates remains in place.
A new report commissioned by RMI Petrol has warned that 435 sites are in a ’highly vulnerable’ position, with the organisation calling for the new coalition government to order an urgent review of how forecourt rates are calculated.
According to the report, called Petrol Filling Station Business Rates VOA Valuation Framework Issues: "It is likely that any site with disproportionately high shop sales by comparison to fuel will be seriously considering closing the forecourt if there is an opportunity to reduce their rates liability, particularly if there is a need to invest in the forecourt."
The research was carried out by specialist property advisory firm Barber Wadlow and has been issued to the Valuation Office Agency (VOA) and the government as part of RMI Petrol’s challenge to get significant amendments made to the 2010 revaluation scheme for petrol stations.
Adam Wadlow, partner at Barber Wadlow, explained that 435 UK sites had been found to have sufficiently low fuel sales below the average dealer volume of 2.25 mlpa, but were achieving average annual shop sales above the dealer average of about £400,000. The average of these sites had fuel sales of 1.4mlpa and £775,000 shop sales.
Wadlow added: "With fuel sales at this particularly low level, there is a logic in removing the forecourt to significantly reduce the rateable value. The argument for closure is stronger again if the forecourt is old and equipment in need of replacement (which invariably is the case with the low-volume sites). The cost of replacing tanks and re-pumping the forecourt can be circa £200,000 and, with fuel margins at only circa 3%, there may be more merit in putting this investment into the shop where margins of 20% plus can be achieved.
"We would therefore expect the number of forecourts ’at risk’ of closure to be considerably higher, potentially 10% of the network. Given that we have already lost one in three petrol stations since the millennium, a further decline would be particularly damaging to the UK infrastructure."
RMI Petrol chairman Brian Madderson has been campaignng for months for all c-stores to be valued in the same way under the latest Business Rates, which came into force on April 1. Under the current system, on a standalone c-store, the VOA looks at the rental value per square metre, but on a forecourt it looks instead at the rental value of the turnover, also known as ’percentage to rent’.
According to the RMI Petrol report, a petrol station has the scope to do 10% more sales than a comparable c-store, with figures of average weekly shop turnover per square foot of £19.50 for a forecourt c-store versus £17.75 for a standalone c-store. However, the rateable value per square foot is considerably higher for a forecourt c-store £23.75 compared to £9.75 for a standalone c-store.
Wadlow said: "There is a huge inequality for forecourts, that’s why we urgently need to have a review. We think that the entire methodology and assessment framework needs to be changed."
RMI Petrol and Barber Wadlow have agreed that Transitional Relief, where rates increases are staggered over a number of years for those with the biggest increases, would be of very little help to most independents. According to the report, Transitional Relief will only delay the decision of closure for a retailer a year or two.
And as there is no Transitional Relief in Scotland or Wales, retailers in these parts of the country will be forced to make the decision much sooner.
The report added: "Moreover, all petrol filling station businesses will be devalued to some extent because of the reduced profit potential going forward a prospective purchaser will need to factor in the rates increase even if there is some relief in the first couple of years."
Meanwhile, it is the rural petrol stations that are likely to be hardest hit by the new Business Rates, with the report’s researchers pointing out that the loss of yet another forecourt in such an area could be hugely detrimental to local communities and economies.
But there could be a chink of light at the end of this very long tunnel for a number of independents. According to Wadlow, the VOA has already made some changes to the valuation system for forecourts situated in rural areas.
Wadlow explained this move as encouraging, adding: "Interestingly, the VOA would appear to be aware of this issue as it has come to our attention that a 2010 rateable value for a rural site has already been more than halved prior to April 1, 2010.
"We understand that this adjustment was made because at the originally proposed rateable value, there was a serious possiblility that the business (or at the very least the forecourt), which is vital to the local rural community, could be lost.
"The VOA therefore do appreciate that the site in question is a lifeline to the rural community and, without it, many local residents would have been unable to get to another forecourt to fill up their vehicles this winter.
"The VOA is therefore being forced to make adjustments to their framework to protect certain sites that are supporting a local community, which must demonstrate that the proposed valuation framework is not workable."
A copy of the Petrol Filling Station Business Rates VOA Valuation Framework Issues report can be downloaded at www.barberwadlow.co.uk.