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Motor Retail Market Review Spring 2014
Investment Sale – Land Rover, Solihull Investment Acquisition – Audi, Cheshire Oaks
Investment Acquisition – BMW, Worcester
Lease Restructuring – Alfa Romeo & Peugeot, Cardiff
Investment Acquisition – Audi, Stoke Investment Acquisition – Vauxhall, Beverley
Investment Acquisition – Audi, Hereford Development – Audi, Oxford
THE MARKET IN 2014
Consumer confidence has increased dramatically during 2013
and new car sales have risen as a result – this despite consumers’
purchasing power being squeezed by inflation that has been
running well above earnings growth.
Research from the Society of Motor Manufacturers and Traders
(SMMT) shows that 2.26 million new vehicles were registered in
2013. That was a rise on 2012 of nearly 11%, although the figure is
6% lower than 2007’s 2.4 million figure – the previous peak. The
2013 total was boosted by a 24% rise in sales in December,
marking the 22nd successive month of increases.
Helicopter money – refunds from mis-sold payment protection
insurance policies – has helped to fund deposits. Average payouts
have been about £3,000 and attractive financing deals have
tempted buyers, with three-quarters of sales to private buyers
now involving some kind of financing package.
Typically, this kind of finance ties the purchaser into a replacement
cycle that continues to drive sales and, all the while finance is
cheap, it is likely that the sales of new cars will continue to grow.
Good year though 2013 was – it is still nearly 15% from the peak
market of 2003.
Ford dealers took the honours in 2013 with the Fiesta and Focus at
the top of the sellers table.
There is evidence of consolidation across the country, in the form
of the sale of combined properties and businesses or “going
concern” sales. Dealers Marshall Motor Group, Meridian Motor
Group, and JCT 600 made the most acquisitions during 2013. The
most transacted franchises were Toyota, Volkswagen, and Land
Rover.
Demand for cheaper, compact luxury cars is creating growth for
established premium brands. These luxury brands require modern,
large facilities in prominent locations and will discard older, less
well located, inflexible properties. This is leading to a pick-up in
new dealership development, for instance Chester Volkswagen,
Croydon Volkswagen, and Oxford Audi.
The property market in 2013 saw sales of very nearly £200 million
in 42 transactions – split 24:18 between Dealers and Manufacturers.
The Midlands and North were the key battlegrounds accounting
for 33 out of the 42 transactions.
2013 saw a jump in the average sales price of just over 20% and
rise in rents of 3% over 2012. If translated into values this would
indicate a total return over 28% for the year. This is some way
above the IPD monthly retail total return of 7.6%.
With average yields at around 6.5% there is scope for significant
further yield compression towards the 5% seen in 2007. Prime
yields are already at this level with manufacturers seeing 4.8%
and dealers 5.1%.
Secondary yields also fell by 35 basis points in 2013 to just
under 7%.
Market Review Spring 2014
Rank Manufacturer Model Unit Sales
1 Ford Fiesta 121,929
2 Ford Focus 87,350
3 Vauxhall Corsa 84,275
4 Vauxhall Astra 68,070
5 VW Golf 64,951
6 Nissan Qashqai 50,211
7 BMW 3 Series 43,494
8 VW Polo 42,609
9 BMW 1 Series 41,883
10 Peugeot 208 38,616
BEST SELLING BRANDS
2003
50.0
100.0
150.0
200.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MARKET SIZE
2013 saw the biggest market in automotive investment property for the last decade. The total sales value was just under £200 million exceeding the previous peak in 2006 and well above the average of £117 million.
£m
20034.00% 10
Yield (left axis) AULT years (right axis)
5.50% 16
7.00% 22
4.50% 12
6.00% 18
7.50% 24
5.00% 14
6.50% 20
8.00% 26
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
FIGURE 1: YIELDS AND UNEXPIRED LEASE TERM
200370
100
130
80
110
140
90
120
150
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
FIGURE 2: DEALERSHIPS SALES VS IPD CAPITAL GROWTH IN THE RETAIL SECTOR
IPD – retail capital growth
APC – sales price
This on an asset with an average unexpired lease term over
17 years (2013) compared with under 6 years for the unweighted
IPD index. In fact there is a reasonably strong correlation
between retail sector capital movement and sales values in motor
dealerships.
Automotive Property 28.2%
Equities (December 2013)* 18.5%
IPD Office* 14.4%
IPD Industrial* 14.2%
IPD Retail* 7.6%
Gilts (December 2013)* -5.2%
*IPD Monthly Index December 2003
COMPARATIVE TOTAL RETURNS
KEY ACQUISITIONS IN 2013
• Spire Automotive acquired BMW & Mini dealerships in
Watford and Borehamwood, plus an aftersales centre in
Ruislip from Jardine Motor Group. They followed this by
acquiring their fourth BMW and Mini dealership from
Hexagon.
• Lookers bought the Volkswagen Van Centre in Glasgow
out of administration as well as Glasgow based Shields
Automotive for £8.75 million and then acquired a Land
Rover dealership in Watford for £10.4 million.
• John Clark Motor Group has acquired four dealerships in
Scotland from Pendragon, representing the Land Rover
and Jaguar franchises. They also bought Skoda in Perth.
• Vertu Motors acquired two Volkswagen dealerships in
Lincoln and Boston for £3 million and three Land Rover
dealerships from the Co-Op in Leeds, Guisley and
Bradford for £31million.
• JCT 600 became the UK’s tenth largest motor retailer
taking over Gilder Group, which had nine sites
representing Audi, Volkswagen, Seat in South Yorkshire,
Derbyshire, and Nottinghamshire.
• Group 1 Automotive acquired four Ford dealerships from
Inchcape.
• Marshall Motor Group acquired ten site Silver Street
Motors. The acquisition will take Marshall’s Group
turnover to almost £1 billion and adds the Audi and
Skoda brands to its franchise portfolio for the first time.
FIGURE 3: SALES BY REGION
East Midlands 12%
West Midlands 21%
Yorkshire & Humberside
12%
Greater London 10%
North East 10%
North West 17%
Scotland 7%
South East 7%
South West 2%
Wales 2%
RENTS
APC have recorded 4% rental growth overall in 2013. This includes
an average of 6% for prestige franchises and 3% for others. This
compares favourably with overall inflation in the Consumer Price
Index (CPI) of 2%.
However, based upon analysis of sold investment properties, after
taking account of inflation, the automotive sector has seen
almost no real growth over the past decade. Figure 4 shows a
breakdown of lease structures identified from 2013 sales.
It shows that only 22% of leases were on the basis of market rent,
the remainder either seeing fixed uplifts or being linked to an
index usually RPI and often with caps and collars on the size of any
increase.
The net effect of this can be seen in Figure 5 which sets the rental
performance against that of IPD retail rents over the last decade.
Rents in the motor sector are at more or less the same level they
were in 2003 while general retail investments opened up a 20%
gap with the motor sector by 2008.
Since then investment in the retail sector has reflected the
problems being experienced by retailers and has fallen back but
still sees compounded performance nearly 5% higher than the
Motor sector.
This offers up the prospect of significant rental growth in the
motor sector catching quickly up with retail rental growth as the
economy moves into stronger growth and the recovery takes hold.
Market Rent 22%
Indexed 49%
Fixed Uplift 29%
FIGURE 4: TYPES OF LEASE IN 2013
200380
95
110
85
100
115
90
105
120
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
FIGURE 5: RENTAL GROWTH VS IPD RENTAL GROWTH IN THE RETAIL SECTOR
IPD retail rents
APC motor retail rents
continued overleaf…
RENTS (cont…)
The opportunity may differ according to geography. As would be
expected, rents are highest in Greater London and the South East.
There is a 25% differential between Greater london and the South
West, for example, and this gap widens to 50% for Scottish
properties.
Regulated by:Disclaimer. The property details contained within our database have been sourced from particulars in general circulation and our own records and whilst the information is believed to be correct Automotive Property Consultancy Ltd do not accept responsibility for the accuracy of the information provided. Whilst we endeavour to keep this information regularly updated we recommend that the information provided is independently verified if contemplating relying on it. March 2014.
Bill Bexson BSc FRICS Managing Director RICS Registered ValuerInvestment, Agency, Development, Valuation, and Corporate Consultancy
Tel: 07831 827442 bbexson@automotive-property.com
Kristina Simpson MSc MRICS AssociateAgency, Investment and Corporate Consultancy
Tel: 07585 705336 ksimpson@automotive-property.com
Charlie Dalton BSc (Hons)Agency, Investment and Research
Tel: 07733 535952 cdalton@automotive-property.com
Vic Rance BSc MRICS ConsultantRent Reviews
Tel: 07970 889293 vic@automotive-property.com
Automotive Property Consultancy Ltd 100 Pall Mall, St James, London SW1Y 5NQ
Tel: 0844 560 7525
For more information please contact:
Around £300 million of car dealership investment stock came
to the market during 2013 and about £200 million sold. This
compares with approximately £100 million sold during the
whole of 2012.
Prime yields are expected to tighten further in 2014 with
manufacturer covenants seeing 4.75% and dealer covenants 5%.
The average yield on sale has already reduced by 75 basis points
in 2013 compared with the ten year average of 6.4% and further
growth in values across the board is expected to move this average
below 6%
Average lease lengths of sold properties increased from 14.8 years
in 2012 to 17.2 in 2013. Notwithstanding that this reflects the
introduction of several Volkswagen sale and leaseback deals with
20 to 25 year unexpired terms, 17.2 years is still significantly
longer than is seen in other property sectors.
The motor retail sector has left the stagnation of the past few
years behind, reflecting both a recovery in the wider commercial
property market and a recovery in consumer confidence and
spending on cars.
Clear trends for 2014 include: rising owner occupier purchases,
higher loan to value ratios, the cost sharing and profit enhancing
benefits of multi-franchising, increases in new dealership
development, manufacturer prescribed building works, and the
rising market share of prestige brands.
DEVELOPMENT
2013 saw development newcomers, Kia, Hyundai, and Nissan,
enter into new dealership development in key locations at
Brentford, Croydon, Stockport, and Bristol.
By contrast, General Motors (GM) confirmed that Chevrolet will
end its presence in Europe by the end of 2015. GM will focus on
the Vauxhall and Opel brands.
The average size of building transacted in 2013 was 16,800 square
feet on a site of 1.2 acres giving an average plot density of around
32%
Clearly there is a wide variation here between sites. Figure 7 plots
building size against plot density and site size.
OUTLOOK
2013 was a good year for investment in motor retail and the
market is seeing activity levels that echo the pre-recession period.
£0.00
Greater London
West Midlands
East Midlands
Wales
South East
North East
East Anglia
Northern Ireland
South West
Yorkshire & Humberside
North West
Scotland
£2.00 £4.00 £6.00 £8.00 £10.00 £12.00 £14.00 £16.00
FIGURE 6: AVERAGE RENTS BY REGION
£per sq ft
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
0%
30%
60%
10%
40%
70%
20%
50%
80%
90%
FIGURE 7: SITE METRICS 2013
Building size in sq ft
Site area in acres
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