Paul Taylor at GVA offers his take on the impact of surging demand in the new car market on motor retailers and commercial property partners.
“The popular and trade press was awash with articles indicating a resurgent new car market in the UK at the start of the New Year.
“The Society of Motor Traders and Manufacturers (SMMT) reported 2013 car sales 10.8% up on the previous year. The UK is now the second largest European new car market after Germany, with 2.26m new vehicle sales, the highest level since 2007.
“The impact of this on automotive property is clear: manufacturers are dusting off pre-recession requirements and demanding higher-spec and more expansive retail facilities from their franchise partners.
“Modern dealerships are land hungry (prime sites of 1.5 – 3 acres are the norm, particularly for the prestige brands) hence smaller existing sites cannot viably be redeveloped.
“The cost of securing sufficiently prominent and accessible sites is becoming increasingly challenging – particularly in London and the South East – as demand increases for a wide range of alternative uses.
“This includes slightly less orthodox quarters, as evidenced when we were recently gazumped by a party acquiring a (very expensive) site for development of a place of worship.
“Q4 2013 saw a raft of planning applications for new developments, including (but not limited to) Porsche (East London and Wolverhampton), BMW (Leeds), Mercedes-Benz (Tonbridge and Epsom) and Audi (Poole).
“Other notable high profile schemes in the coming months will include brand centres for KIA and Volkswagen in West London. Whilst it will not be publicised, and it is by no means the norm, some manufacturers in certain instances will provide support for the dealer in one form or another.
“When land prices become too prohibitive, especially in Greater London, manufacturers may be left with no alternative but to assume responsibility for site acquisition themselves; this does bring with it the appeal of site control (as opposed to being exposed to a dealer walking away and leaving the brand unrepresented over an extended period until a new solution can be found).
“Whilst it is an extreme example, one prominent manufacturer recently paid in excess of £5m/acre for its new site in West London.
“Quoting prices of £2m per acre in the South East are becoming more prevalent, although we question how viable such prices are for the majority of franchises, particularly when one takes into account the considerable cost of developing a new dealership, often in the order of £120 – £130 psf plus fees.
“Bespoke developments, leased to strong manufacturer covenants, do however provide attractive investments incorporating comparatively long lease terms (20 years+) with fixed or index-linked reviews. We were very active in the investment market in 2013 but there is now a dearth of prime stock.
“Certainly, sale and leaseback offers retailers and manufacturers the ability to recover the prohibitive cost of securing land and developing new outlets, and offers investors the opportunity to acquire flagship facilities far removed from the dealerships of yesteryear.
“Vauxhall’s MD was recently quoted as expecting the market to grow until 2017 and the fundamentals point to sustained market activity. We may even beat the religious institutions to a site or two.”
