Land Values: A petrol station on Dublin's Merrion Road went to tender last week. Agent Hamilton Osborne King guided the premises at €8 million, but tender values rocketed past €12 million.

Why such interest in a petrol station? It sits on half an acre of land zoned residential. Within line of site are multi-storey residential blocks, ensuring very high densities would be allowed for any redevelopment of the site.

Developers are now actively targeting land banks sitting under petrol forecourts and beneath pub parking lots. Many pubs and petrol stations occupy highly desirable locations close to built-up residential areas and village and town centres. The land becomes much more valuable than the commercial activity taking place on the site.

"Now that land values have grown to the level they have and, given a lack of suitable sites, pubs with large parking lots have become very attractive for developers," says John Hughes of CB Richard Ellis Gunne's licensed division. "With the scarcity of land, developers are thinking outside the box when looking for opportunities."

Pubs and forecourts occupying even relatively modest ground space offer just the right kind of opportunity, suggests HOK's director of development land, Mark Reynolds. Often isolated or remote when originally built, housing tends to grow into the spaces surrounding pubs and petrol stations.

This in turn means that they can occupy extremely valuable land in areas where residential development land has become scarce, says Reynolds. This is the dynamic that pushed the Merrion Road station to such high tender values.

The half-acre site is already zoned residential. "It is located beside Tara Towers and the park so there is huge potential height and good density," says Reynolds.

Valuing a petrol station that is going to continue selling petrol depends on calculations based on turnover and net profit margins. Yet the land bank it sits on will be valued on the basis of the number of residential units that can be built on it and, if this is high enough, the land value becomes higher than the value of a forecourt as a going concern, Reynolds states.

The Merrion Road site's value has yet to be declared as the tender process is still underway. It outstripped expectations by more than 50 per cent, however, according to sources.

Tender results are also awaited for two CB Richard Ellis Gunne offerings, the Swiss Cottage pub site in Swords and the Greyhound Inn in Blanchardstown. These went to market on March 24th and the process is ongoing, says John Hughes.

The Swiss Cottage occupies about an acre in an established residential area with very good road access. The Greyhound Inn adjoins the Superquinn shopping centre and so would have redevelopment potential, either for residential plus pub or retail/commercial.

This kind of redevelopment isn't wholly new, although the targeting of such sites by developers is a relatively recent phenomenon, suggests Hughes.

The average price of a Dublin pub was about €3.8 million on the basis of 39 pub sales in 2005. But look at the €20 million paid by publican Charlie Chawke for the Orchard Inn on Butterfield Avenue in Rathfarnham.

The pub came with a substantial land bank and this now offers substantial redevelopment potential, says Hughes. "There certainly would have been a development potential on the site."

This process has been underway for several years and there are plenty of examples. Kitty O'Shea's off Dublin's Grand Canal Street Upper was redeveloped into pub plus apartments and so, too, was the famous Hill 16 on Gardiner Street which now has a pub below and apartments above. Another is the Park Inn in Harold's Cross, says Hughes.

Sometimes it is the land that attracts and in others it is the opportunity to add apartments or a retail/commercial dimension to a site that will retain its pub licence.

These sites represent huge potential to developers struggling to find development lands, says Mark Reynolds. He predicts that many pubs and petrol forecourts will undergo redevelopment in the coming years, with new petrol stations opening up as they have in the past, further out where lands are less expensive.

He also predicts a later repetition of this process, with nearby lands filling up around these forecourts and later redevelopment into valuable residential units.

In the shorter term this process may be accelerated by supermarket chain Tesco. Many of its UK outlets have petrol forecourts and it follows a very aggressive petrol pricing policy, undercutting the local competition.

The company has now started this process here with six or seven Tesco petrol stations already in place in Mullingar, Tralee and locations in Dublin.

Industry sources indicate this is ongoing and existing forecourts could be targeted if they have adjacent land banks.