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The Future of Gas Stations in Canada: Adapting to the Rise of Zero-Emission Vehicles

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In 2021, there were approximately 11,934 retail gasoline stations in Canada, which amounts to 3.1 stations per 10,000 Canadians. When appraising gas stations, one of the main factors we analyze to determine their market value is the stabilized net operating income, excluding amortization, interest and taxes. The primary revenue sources for gas stations are typically fuel sales, automotive products, personal convenience items, lottery commissions and ATMs. The potential income generated by these sources is influenced by various factors, such as the fuel prices set by the owner, the volume of vehicle traffic in the vicinity and the overall efficiency of the operation.

Gas station properties are usually valued on a going-concern basis, which includes the chattels associated with the business along with the real estate. This differs from typical commercial real estate valuations as the business operation is inherently tied to the value of the real estate.

Market conditions, such as the overall demand for gasoline, competition in the area and regulatory restrictions on gas stations, can also influence the appraised value. Densified areas of Canada's major cities often have fewer gas stations; this is abundantly evident in Vancouver's downtown core, where only one option remains.

Regardless, Canada's remaining gas stations must consider other avenues in order to pivot and adapt to a trend that is disrupting the industry: the rise of zero-emission vehicles.

Canada's Push for Zero-Emission Vehicles: What it Means for Gas Stations
In Canada, zero-emission vehicles (ZEVs) still make up a relatively small portion of the market, accounting for just over 5% of new vehicle registrations in 2021. However, this figure is on the rise as more ZEV options become available and the Canadian government takes action to address climate change by reducing transportation emissions, mandating that all new cars and light-duty vehicles sold in the country be ZEVs by 2035.

While Canada’s Action Plan for Clean On-Road Transportation does not entail a complete ban on gas vehicles, it does mean declining demand for petroleum, which could significantly impact gas stations' earnings and valuations if they do not adapt to a new model.

To remain competitive, gas stations may need to pivot their business models to cater to the growing number of ZEVs on the road. Gas stations can still thrive in the age of electric vehicles; while there are challenges to overcome, there are opportunities to adapt business models to stay relevant as the world shifts towards cleaner modes of transportation.

Diversifying Revenue Streams Beyond Fuel Sales
Gas stations do not monetize on fuel sales alone; convenience stores and other revenue streams play a significant role in their overall valuation. Additionally, EV charging stations can provide additional revenue for owners and increase customer traffic to their location.

For the industry to continue to thrive, owners will need to adapt to future customers’ wants and needs - from healthier food options to fully automated checkouts to, predictably, electric vehicle charging station locations, of which Canada currently has more than 8,700. While adding ZEV charging stations to existing gas stations can sound like a simple solution, savvy owners will need to rethink their current business model to cater to customers who are spending 15 to 60+ minutes at the stations while they wait for their vehicles to charge.

Petro-Canada’s ‘Electric Highway’, which has over 50 fast-charging stations along the Trans-Canada Highway, is piloting different amenities to see what attracts customers. For example, in Cookstown, Ontario, about 80 kilometres north of Toronto, drivers can sit inside and watch TV, eat a burger on the outdoor patio or take their pets to the on-site dog park.

While ZEVs are expected to reduce fuel consumption and decrease the demand for gas stations, the transition will not happen overnight. Moreover, the valuation of gas stations is based on various factors, including location, size and additional revenue streams. Therefore, gas stations with EV charging stations and customer-focused amenities could become more valuable than those without.

Reducing ‘Range Anxiety’: Why Government Funding and Incentivization is Crucial
According to a report by the Canadian Automobile Dealers Association, if 50% of Canadians switched to an electric vehicle, Canada would be nearly 1.7 million ZEV chargers short of what is required to power consumer ZEVs.

In addition to the $1 billion in funding provided by the federal government since 2016, the government recently launched the Zero Emission Vehicle Infrastructure Program (ZEVIP). This $680 million initiative, which will run until 2027, aims to address the lack of charging and refueling stations as a critical barrier to adoption. The ZEVIP will provide funding through cost-sharing contribution agreements for eligible projects that help meet the growing demand for charging and refueling services.

Gas station owners who install ZEV charging stations may be eligible for financial incentives, such as grants or funding. In addition, the government is offering support for the planning and installation of the charging stations, including technical assistance and information on the best practices for operating and maintaining the equipment.

By incentivizing gas station owners to install ZEV charging stations, the Canadian government can increase the accessibility and convenience of charging options for EV drivers. This will help reduce range anxiety, a common concern among potential ZEV buyers, and encourage more Canadians to switch to electric vehicles.

Commercial Real Estate Developers Must Adapt to the Rise of ZEVs
The increasing adoption of ZEVs is also set to significantly impact commercial real estate in various ways. One of the most notable effects will be the growing demand for EV charging stations at retail centres, office buildings and hotels. As more Canadians switch to ZEVs, commercial real estate developers and owners will need to install charging infrastructure within their properties to cater to this trend. Another potential impact of ZEVs' growth is the reduced need for fewer parking spaces, as ZEVs require less parking than traditional gas-powered vehicles. This shift could free up space for other uses like retail or office space. However, the increasing number of ZEVs will also present energy management challenges, which may necessitate costly upgrades in building systems and equipment.

The shift towards ZEVs is an opportunity for the gas station industry to adapt and evolve. Still, it highlights the need for government and industry collaboration to ensure a smooth transition. As the automotive industry continues to change, we must think creatively and collaboratively about a more sustainable, equitable and profitable future for all stakeholders. By embracing innovation and new business models, the gas station industry can position itself for success in a changing world.

Pour plus d’informations, veuillez contacter:

Stefan Van Houtte

Director

Toronto Downtown

Since starting his career in real estate appraisal in 2012, Stefan has gained experience appraising a variety of commercial and residential real estate asset types. He specializes in mixed use, industrial, office, retail, and multi-family appraisals. Based in Toronto, he provides appraisals for clients ranging from lenders and lawyers to mortgage brokers across Ontario.

Stefan achieved his AACI, P. App designation in May 2019. Prior to his designation, he graduated from the University of Western Ontario with a bachelor’s degree in Management and Organization Studies, specializing in Finance.

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