Auto Site Selection
New-car dealerships have specific location requirements.
seven-story new-car dealerships are being built, it is a sign that fortunes are
changing in the recently battered automobile industry. While the next
development cycle for auto dealerships is just beginning, it is certainly
underway. And, while the 142,000-square-foot Audi dealership that opened in
Houston in 2014 is not the smallest example of recent dealership construction,
it is not the largest either: In 2013 a 170,000-sf Lexus dealership was built
in Plano, Texas. Several other auto dealership construction projects are
underway or in planning in other areas of the country as well, including a
26,250-sf dealership under construction in Kennesaw, Ga., that will house one
of just two Georgia-based Mini Cooper franchises.
sheets for dealers that survived the recession have never been stronger. The
average U.S. new-car dealership produced a return on equity of 29 percent in
2013, according to the National Automobile Dealers Association. That figure has
risen in four of the past five years, and dealerships also are now enjoying
demand for new-car dealerships is ultimately a function of vehicle sales.
Increasing sales and profits, along with pent-up demand from a lack of new
construction since before the recession, are fueling the new development cycle.
While many operators are seeking to acquire existing dealerships, the high
business value associated with them makes new construction a surprisingly
dealers invest an average of $11.3 million in each new-car dealership, with
land and facilities costs averaging just under $3.1 million per dealership,
according to NADA. Given those substantial upfront expenses, location is
critical and there are site selection requirements unique to this specialized
research performed from 2009 through mid-2014 reveals some common
characteristics that determine if a site is suitable to support a successful
new-car dealership in almost any market.
as it may seem, exposure to traffic is the most important characteristic of a
good site. An auto dealership site should be easily visible from a surface
street with a traffic count from 10,000 to 50,000 vehicles per day. Suitable
sites are almost always near a significant demand generator, such as a regional
mall, and are convenient to commercial consumer amenities such as restaurants.
to other dealerships is also vital. Auto dealers prefer to be clustered, as
they feed off each other’s traffic — and franchise agreements protect them from
the same brands being offered by competing dealers.
today, when car buyers increasingly research makes and models online, potential
buyers who use smartphones while visiting a dealership are almost three times
as likely to visit other dealerships, according to a Placed Inc. study. More
than a third are attracted by online advertisements from a nearby competitor,
underscoring the importance of remaining close to the competition.
appropriate site size varies by market and anticipated sales and service
volumes, but is typically at least eight times larger than the planned building
area, with lower ratios in urban markets. Adequate frontage is critical to
display new and used vehicles.
sites appealing to automobile dealership operators and developers are typically
prime commercial sites but not top-tier sites. Auto dealership sites tend to be
priced higher than sites marketed for traditional destination retail or
mini-storage projects and lower than sites appropriate for power centers.
of selecting the wrong site can be enormous. Historically, most real estate
professionals regarded auto dealerships as prime candidates for alternative
uses because they generally are large sites with good commercial locations.
However, the large supply of dealerships that became vacant in the years
following the Great Recession gave lenders and property owners a firsthand
lesson on how few re-adaptive uses actually make financial sense for most
dealership market is a franchise system: Auto dealers are granted exclusive
territories by car manufacturers. Therefore, researching the availability of
franchises should be one of the first steps in a defining a trade area for
marketing a potential site.
thorough market investigation also includes any competitive dealerships under
construction or issued building permits and the inventory of zoned development
sites. Studying market demand includes finding out how the volume of vehicle
sales at local properties compares with industry norms. An analysis of
demographic data is another vital step. Along with determining the incomes of
local residents, it may also be necessary to explore if the distribution of
incomes is consistent with the costs associated with the manufacturer’s
addition, education levels should also match the demographic of the typical
buyer for the type of vehicles to be marketed. STDB demographic reports and
mapping features will help begin the process, which is typically best followed
by firsthand research, including interviewing local CCIMs familiar with the
R. Carter, CCIM, CRE, MAI, is principal and appraiser of Greystone Valuation
Services in Atlanta. Contact him email@example.com.