THE lobby group representing the country’s petrol stations claims the number of outlets has dropped by 400-500 in the last five years, and blames this on the small profit margins on petrol. The only thing keeping many of them in business, apparently, is the sale of sweets, newspapers and soft drinks.
It may be the case that margins on petrol in Ireland are smaller than those elsewhere, but this is not the full story. One of the key factors in the rationalisation process is the soaring value of land. The ground on which many filling stations stand is so valuable to developers that it makes little commercial sense to continue using it to sell petrol.
Shell has sold its Irish retail business to a group of Irish investors and they have wasted no time in cashing in on this trend. Three filling stations in Dublin come under the hammer next month.
The guide price for a 0.7 acre site between Booterstown Avenue and Mount Merrion Avenue near Blackrock is put at €10m, which will almost certainly be exceeded. This works out at more than €200,000 for each apartment, assuming the likely housing density.
The company is also selling filling stations at Parnell Road on the Grand Canal (quoting €3.5m for 0.4 acres) and another filling station site in Greystones is also on the market at a guide price of €3.75m for 0.7 acres. Given those prices the attractions of selling petrol will quickly pall.
With some of the world’s biggest companies taking a strategic decision to withdraw from petrol retailing in Ireland, it seems likely that the flood of sites coming to the market will continue. Motorists can expect to drive much greater distances in future to fill their tanks.
Every day we are seeing further evidence of how rising land values are affecting business transactions. Not only are petrol stations disappearing, but so too are schools, playing fields, hotels and pubs. Indeed, in one suburb alone, Ballsbridge, the pace of change is extraordinary.
This is the country’s most sought-after location. Last week saw AIB complete phase two of the sale and leaseback deal of its Ballsbridge headquarters. The developer Sean Dunne and Hibernian, an insurance and pension group, picked up half the site for about €370m. Dunne is paying €55m an acre for his portion of the site. The former Johnson Mooney and O’Brien bakery site, almost directly across the road, was sold for €2m an acre in 1990.
The bank is a stone’s throw from three hotels previously owned and operated by the Jurys Doyle Group. They have been acquired by Dunne, and the company is planning to construct an enormous residential and commercial development in their place. The site of the former veterinary college behind the hotels has also been sold and will be turned into expensive apartments.
Filling hotel rooms and housing sick animals in Ballsbridge simply makes no sense when builders and banks are prepared to spend hundreds of millions on the ground beneath these assets.
The biggest and best remaining sites are often held by religious orders. Despite their commitment to schools, hospitals and other “social entities”, these orders will be tempted to offload some of the land in what is a red hot market. They will then be able to use the funds to develop overseas missions.
A number of schools have already sold off parts of their playing facilities. Last week the Religious of Jesus and Mary, which runs Our Lady’s Grove school in Goatstown, announced it had reached agreement with the Crampton Group on a site-splitting exercise.
The builder will be allowed to develop three commercial blocks of apartments. In return he will construct various facilities for the school and the order. Twenty-two developers pitched for this project. The “implied value” put on the Crampton deal in Goatstown is €8m an acre, although this could be an underestimate.
All over the capital there are sites in middle-class districts that are used as playing fields and training grounds. Bit by bit this land has been sold to residential developers, if only to pay for much needed investment in education infrastructure.
We already know that construction and property accounts for roughly one fifth of the country’s economic output. But its influence stretches beyond mere statistics.
The price of land means that the social fabric of communities is being ripped apart. In its place we are building apartment units in unprecedented numbers. Output in the sector is set to reach 85,000 units this year. Last year the figure was 81,000.
So far, economic commentators have concentrated on issues such as rising prices and affordability, but what about the enormous infrastructural issues that accompany this development? Not only will people be living in developments with reduced access to schools, playing fields, petrol stations and social facilities, but in the absence of suitable public transport there will be increased pressure on the roads as residents are forced to go further afield to find these services.
What about the developments themselves? The concept of a family house in an urban centre, even where sites are available, is a thing of the past.
High land prices dictate higher density and higher home prices. In general the apartments constructed are small and expensive. The theory is that people are tired of commuting long distances, want to live close to their workplace and that average family size will drop to about 1.5, leaving a big demand for small, high-spec units.
If the price of farmland is anything to go by, developers do not expect the good times to end any time soon. In north Galway remote tracts of land are fetching up to €35,000 an acre. This is about six times more than the best prices achieved in the late 1990s.
With the economy growing 5% a year and inward migration of young adults, it could be that the construction of high-density apartment blocks and sprawling housing estates will prove a good commercial bet in the long term.
But the wider implications of untrammelled development have not yet been considered by the government or economic planners as the construction boom continues to wag the economic dog.
P.S. In all the talk about oil prices few people have commented on the steady increase in the value of the euro against the American dollar. The mood in America suggests that the series of “measured” increases in the Federal Reserve’s base rate has reached at least a temporary plateau, but the European Central Bank is still muttering darkly about higher rates in Europe.
A higher euro exchange rate has the effect of increasing competitive pressures on Irish business, but also makes it more difficult for us to make the case for foreign direct investment.
The stronger euro comes at a time when evidence of worsening competitiveness is beginning to accumulate. The number of jobs in the manufacturing sector is about 30,000 below peak levels and our exports are growing at a sluggish pace.
Reading too much into export aggregates is a dangerous business as they are affected by currency values and transfer pricing, but the best estimates suggest that while global trade grew by about 6% last year our exports were up by 1.2%.
Some recovery is predicted this year, but we should be conscious of the increased mobility of international projects.
Peugeot, the French motor manufacturer, has decided to move an entire components plant from the Midlands region of Britain to Slovakia, which is also welcoming a project from a South Korean manufacturer, which finds its own country too expensive. Nothing can be taken for granted.
We cannot influence the euro/ dollar exchange rate, but we can make greater efforts to control costs. Maybe that explains why negotiations in the current pay round have been dragging on for 15 weeks. With inflation rising, oil at $71 a barrel and the euro heading for $1.30, the background for the pay talks could hardly be worse for employers.
