With big changes on the horizon across the automotive sector Graham Collier, Principal Associate within the real estate team at Mills & Reeve has caught up with Robin Eglin, Director at OMC Motor Holdings Limited and Pete Paphitis, Associate within the Automotive & Roadside team at Rapleys, about the future of dealerships.
Consolidation of dealerships
In recent years, there has been a shift towards consolidation of dealerships and franchises – and a focus on development of larger sites, drawing in customers from a wider area.
Despite that, demand remains high for dealerships – particularly with the rise of second-hand offerings such as Cazoo.
“The current aim is to have a dealership within 30 minutes’ drive of a customer” commented Robin Eglin, “and those sites which are no longer retained, or the franchise comes to an end, are in high demand”. Pete Paphitis added “we’re seeing significant demand from the used car sector as a whole, whether that is traditional used car supermarkets, compact used car operations and of course the new ‘online’ entrants into the marketplace, seeking bricks and mortar collection centres. Unfortunately, supply isn’t keeping up with demand.
The location of most dealerships (on the edge of towns, with good access) makes them a strong investment opportunity. Both Eglin and Paphitis agreed that along with changing focus towards second-hand sales (whether alongside an existing new car sales business, or if acquired by an internet second-hand dealership, for example) there are a number of alternative uses that could be explored, such as:
- redevelopment for last-mile logistics/warehousing – potentially even making use of existing buildings
- residential development, particularly larger dealerships occupying several acres
- gym or other leisure facilities
- Trade Counter schemes (Tool Station, Screwfix etc.)
In respect of the value of such sites from an investment perspective, Paphitis commented "These types of development opportunities are in high demand, regularly leading to competitive bidding through a best bids process". Graham Collier added that “it would be important to ensure that appropriate due diligence is carried out on any site – particularly when considering re-development in the future. Planning and environmental issues should be at the forefront of an investor's mind in those circumstances”.
Business models and diversification
With the issues around supply of new cars, dealerships have one eye on a shift towards alternative business structures. “If we move towards an agency model, with cars chosen and ordered online (with a commission paid to the dealership) – meaning fewer are stocked at the dealership - our need for, and use of, the space at our dealerships will change. Arguably we will need less land for car sales, so could look to repurpose areas, with the first thought in mind being that they would be perfect for EV charging (either personal, or commercial).”
Whether the intention is to retain a dealership usage, or to invest in a dealership site with a longer development goal in mind, there’s plenty of scope for this to be seen as an asset class worth exploring.
If you have any questions in respect of the above, please contact Graham Collier or any other member of the wider real estate investment team.
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