Automobile retailers are facing many of the same challenges other retail industries are struggling to overcome. While new car dealerships and used car dealerships face different constraints in some regards, both are being pressed to address a supply-and-demand land imbalance, changing consumer habits and municipality hiccups. The way forward for used car dealerships looks more nimble in the face of growing land costs and an active online market, while new car dealerships are placing a larger emphasis on the retail experience to retain and attract new customers.
“Real estate has become one of the bigger challenges and, in some cases, the top challenge, dealers have in opening a new store, getting an additional franchise or moving a store to grow with volume,” said Tim Jackson, Colorado Automobile Dealers Association president. The lack of available land has been an issue for the past 20 years, but it’s a much more pronounced problem today, he said.
The demand for automobile real estate is more brisk than ever, said James Mitchell, vice president of CBRE’s automobile properties group. This demand is largely driven by the active automotive industry, which is climbing to a maturity point well beyond the trough of 2008, and dealers are quickly finding that they need to expand current facilities to keep up, he said.
The ideal location for a dealership is paramount. “You want to be visible, you want to be accessible and, depending on your brand, you want to be surrounded by other brands that are the caliber that you’re trying to promote,” said Mitchell. “So if you’re a Mercedes-Benz dealership, you don’t want to be surrounded by a bunch of pawn shops. You want to be surrounded by other high-end brands.”
Most owners are looking for acreage in new properties that can support a lot of surface parking as well as a single-story or a two-story building, said Mike Hockett, W.E. O’Neil Construction Co. vice president of business development.
Dealerships tend to cluster near one another, offering consumers an easy route to stop by several dealerships in one trip. Many of these clusters are located outside of metro areas in unincorporated counties, such as unincorporated Weld, Adams and Arapahoe counties. The reason for this lies in tax revenue and challenges with municipalities, said Jackson.
“It’s been a problem for a while, and it’s getting to be a bigger problem,” Jackson said. “A lot of that has to do with zoning laws, where local communities want to get other types of retail instead of automotive retail.”
Some communities chase big-box stores, such as supercenters and grocers, because the city stands to reap the benefits of the sales tax revenue, he said. For auto dealerships, it’s different. The tax revenue collected from auto sales is distributed back to where the vehicle owner resides or, if it’s a business, where the company headquarters is located.
Fort Collins is an example of a city that is chasing other retail because the city recognizes that even if it doesn’t have any dealerships, as long as its residents buy the cars, the city will still get the tax revenue. “So it creates an incentive to chase a Walgreens or a Target, but not as lucrative to chase a dealership,” Jackson said.
Due to these all-too-common municipality headwinds, the price of automotive real estate that’s favorably zoned goes up, Mitchell said. “The demand for automotive real estate is probably the highest I’ve seen since 2008,” he said. “And that demand is accentuated by a lack of supply.”
In the past five or six years, auto retail sales increased dramatically. Today, the auto retail market is steady, but flattening, Jackson said. However, there still are a lot more buyers for new cars than there are sellers. “The number I hear is – for every seller in the marketplace, there’s 30 buyers,” he said.