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Ruthlessly competitive fuel market creates closed-station blight — and opportunity for reuse

As Wawa reigns in the Philadelphia suburbs and communities are changing, smaller, local gas stations are floundering. Some have closed, leaving skeletons of defunct gas pumps, oil stains on the cement, and a question for sellers and prospective buyers: Does this property even have a future?

This property that currently operates as a gas station and small restaurant is up for sale for over $1 million. It is at 700 W. Cypress St. in Kennett Square, Chester County.
This property that currently operates as a gas station and small restaurant is up for sale for over $1 million. It is at 700 W. Cypress St. in Kennett Square, Chester County.Read moreBob Williams For The inquirer

Along many a suburban roadway, gas stations duel with signs advertising prices just cents apart. Cars feed from gas pumps at super-sized Wawas as drivers pop inside for a hoagie. Warehouse clubs such as Costco tout per-gallon discounts for their members.

And in the great fuel war, some stations go dark, leaving behind the skeletons of pumps and oily, Rorschach-like stains on the concrete.

Thin profit margins, high operation and maintenance costs, and the rising popularity of fuel-efficient cars have made owning a gas station more challenging than ever, those in the energy industry say. Proximity to major highways and busy thoroughfares can help, though revenue that pays for costlier property has to reckon with fluctuations in the market price for fuel and seasonal slumps in demand — statistically, more people drive in the summer than any other time of year.

“Gas stations are small, local business and local businesses have a relatively high failure rate just as it is,” said David Morley, research program and quality assurance manager for the Chicago-based American Planning Association.

Vacant stations in the Philadelphia region, many of which had been independently owned and placed on the market for north of $1 million, can sit unsold for years.

Recent data from the commercial real estate information company CoStar show that 23 gas stations out of 409 in the Philadelphia region are for sale. The largest lot on the market, at 4802 Bethlehem Pike in Telford, is on 2.9 acres. It is listed for $1.5 million.

Prospective buyers can be intimidated not only by the price of the property, but also by possible environmental contamination and remediation, a dated building, or competition from chain retailers.

If gas has leaked into the ground, the owner of the property is responsible for remediation, said Virginia Cain, a spokesperson for the Pennsylvania Department of Environmental Protection. But in the case of a spill, the state Department of Insurance can help gas station owners pay for the cleanup. Those who installed regulated underground fuel storage tanks were required to pay into the Underground Storage Tank Indemnification Fund.

Analysts say there’s a science in the purchase and redevelopment of a failed gas station — a precise methodology in an industry compelled to be aggressive as it is subjected to shifting crude oil prices, global markets, and changing consumer habits.

“It’s very difficult because you don’t make a whole lot of money selling gas,” said Jeff Lenard, vice president of strategic industry initiatives for the National Association of Convenience Stores, noting that a station’s profit can be small after accounting for credit card fees, electricity and real estate costs, and depreciation of equipment. “You can probably make more on a 12-ounce beverage than a 12-gallon fill-up.”

Station owners gamble even in the way they buy fuel. If they opt to buy from a wholesaler by the day instead of taking a yearslong contract that establishes a set price, Lenard said, “you’re left holding the bag” if prices go up because of a supply disruption.

Supply hiccuped and crude oil prices spiked on Sept. 16, nearly two weeks after drones attacked Saudi Arabia’s Khurais oil field and Aramco Abqaiq processing plant and triggered massive fires. U.S. gasoline retail prices also swelled, as the national average increased by 10 cents, according to AAA, and some local markets saw a jump of as much as 25 cents. In Harrisburg, gas became 6 cents more expensive per gallon.

“Fuel has always been incredibly competitive,” Lenard said. “And it still is.”

Some factors could bolster the probability of success for a gas station. A chief priority, he said, is location — even the proximity to traffic lights.

“Left-hand turns are incredibly inconvenient for consumers,” he said. “The most prized — if you have a choice and all things are equal — you always want to be the store after the light, not before. The consumer dynamic is you don’t want to leave the store and immediately get back at the light.”

Predictably, prime placement carries a real estate premium. And if the road is too poorly traveled, Lenard said, other options — an auto body shop, drive-through bank, or fast-food restaurant — may prove a better investment.

A vacant station “doesn’t have to stay a gas station,” said Philip Earley, principal at Lieberman Earley & Co., a Wayne-based commercial real estate brokerage and development firm. “If there’s a Wawa in the area, they suck a lot of customers away.”

Wawa has been shifting away from its smaller, traditional model to larger stores with gas pumps. One example is at 910 MacDade Blvd. in Collingdale.

The 5,585-square-foot store is half an hour away from the corporate headquarters of Wawa, the convenience store darling of Southeastern Pennsylvania that netted $10.6 billion in revenue in 2017. The store moved across the street to the significantly larger, $8.5 million Wawa that includes gas pumps, said Steve Schrenk, a director in the Philadelphia office for the commercial real estate company Jones Lang LaSalle.

Because of the population density of that area, Schrenk said, nearby gas stations will likely be fine. “The other gas stations typically take a little bit of a hit for the first few months to a year,” he said, “but they typically bounce back because of all the traffic Wawa drives to the area.”

When gas stations fail to recoup losses from increased competition, things can go one of two ways, said Morley of the American Planning Association.

“The highest-profile stories you’ll come across are adaptive reuses of historic gas station structures where it’s something about the architecture that is noteworthy or arguably noteworthy,” he said. “But there are many, many, many anonymous gas stations where no one is particularly interested in saving the gas station structure."

Tara Dugan is an exception. In 2016, while searching for a building to open a boutique, she noticed an empty, 70-year-old gas station on a lightly traversed road in Kennett Square, a borough of just more than 6,100 people. She saw the potential in an unloved structure, she said, as did three women who repurposed a Sunoco gas station in Malvern to serve gourmet fare.

“I was looking for a place to bring together local makers, and I was pretty specific that I wanted it to be a one-floor building,” said Dugan, a former lawyer in Philadelphia who now owns her boutique, WorKS, in a part of the borough dotted with industrial facilities. “I had driven past this particular site a few times, and I turned to look at it a bit more closely. It had the one floor, it had the roll-up doors, so it worked from a physical plant point of view. It’s a good thing when you can preserve a building like this.”

The gas station, which she estimated was built in 1949 or 1950, was solidly constructed and free of contamination.

“Nobody was paying attention to this building,” Dugan said. “But I think what used to be seen as challenges are now distinct advantages."