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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