What Is Location Worth?

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What Is Location Worth?

By Robert E. Bainbridge - 10/23/2014

What is location worth? For a convenience store, the answer can be measured in millions of dollars.  

Location is probably more important to a convenience store than any other type of retail business, and few other land uses have such demanding location requirements.

The success or failure of a convenience store depends on visibility, access and traffic count.

Earnings determine the value of a convenience store enterprise. Real estate (the site, store building, canopy, dispensers and underground storage tanks) is part of the assets of the enterprise, usually comprising 90 percent of the overall value. The value of the real estate is also determined by earnings. Stores in better locations earn more and consequently, have higher real-estate values.

To begin to understand the value impact of location, we completed a statistical study of 110 stores in the Intermountain West. We looked at just three location factors in each store’s trade area: supply/demand, customer demographics and hypermarket competition.

Supply/demand measured the total number of convenience stores (supply) in the trade area and the resident customers, or population (demand). Customer demographics considered median-family income. Hypermarket competition noted any cross-channel discount fuel competitors within two miles.

We then developed a 21-variable model to measure the value of the real estate. To determine the impact of location, we used the low and high range of the three factors mentioned above.

We found that just the location difference in supply/demand, customer demographics and hypermarket competition caused the real estate value to decline by 30 percent or increase by 100 percent from the norm of $1 million. In other words, a total variation in price of 130 percent was caused by just these three factors.

These variations in location were not the extreme ends of an imaginary range, but were simply the low and high characteristics of these 110 stores. All other features, such as store size, site area, number of fuel positions, etc., were held constant.

Stores that were in over-supplied markets with poor customer demographics and hypermarket competition were priced at $700,000, while stores in good locations were priced at $2 million.

For a convenience store, it can truly be said: location can be worth a million dollars.