Mark Frostick, associate in the automotive team at commercial property and planning consultancy Rapleys, shares his view on dealer property of the future:

"Despite the recent activity of some trailblazers, predictions of an imminent mass exodus from dealerships to shopping centres and high streets may be premature.

"Like many industries, car retail is experiencing its very own digital revolution; connectivity is creating new networks of buyers, manufacturers and dealers who are interacting through devices like smartphones and tablets. Echoing this, a recent McKinsey & Co report demonstrated the number of a times a customer visits a dealership during the purchase process has dropped from an average of five to just one, with 90% now using web based platforms in the early stages of research.

"Many are now seeing the trajectory heading towards more virtual showrooms, where consumer buying patterns and the use of ‘big data’ and connectivity transforms the way dealers engage with customers.

"With this move away from traditional out-of-town, forecourt facilities retail spaces would be located on high streets and in shopping centres. The full range of vehicles is then held in off-site locations along with PDI, workshops and other services, leaving a clean, crisp customer experience in the ‘showroom’.

"Hyundai and Tesla have led the charge on the shopping centre front, with both recently taking space in the prestigious Westfield shopping centre at Shepherd’s Bush. Aston Martin, meanwhile, are among those taking prime high street locations, with a new showroom announced in a former bookmakers in high-end Mayfair. The unit is described as providing just a single display space, with room for additional retail accessories.  

"Whilst these high street and shopping centre locations generally have a much higher footfall than a traditional dealership, (Westfield had 23 million visitors in its first year of trading alone) and reflects certain consumer behaviours, this prominence comes at a cost.

"The rent for the Aston Martin unit in Mayfair is quoted at £500,000 per annum for only 1,730 sq. ft. of space; this equates to £289 for every sq. ft. that they occupy. Many forecourt dealers have a larger area for car valeting alone.

"If you wanted to showcase your new car range at Westfield in Shepherds Bush for example, a unit of 5,037 sq. ft. over two floors (plus storage) is available for a quoted rental of £435,000 pa, or £86 per sq. ft. This is a marked discount from a Mayfair plot, but a massive difference to traditional forecourt space. It should also be remembered that manufacturers adopting this approach will also be facing the added cost of providing customer facing facilities off-site as well, for test driving or servicing.

"Taking a hypothetical modern franchised dealership of 15,000 sq. ft. of buildings, plus ample parking, based somewhere in the South East (but outside the M25), we would expect to see rentals in the region of £250,000 pa. In terms of rental alone, this equates to running two full dealerships for the same price as a single car showroom in Mayfair. Whilst the staffing costs are likely to be higher, a forecourt operator has many more profit centres from a full dealership than a next-generation digital one – such as valeting, additional product ranges, services and MOTs.

"Money, as they say, talks.

More marketing than profit-making

"Of course, we are not necessarily comparing like for like here. In many cases high street or shopping centre space is being strategically used to build brand awareness and customer interaction, rather than make profit onsite. They are, in effect, statement locations which form part of a manufacturer’s marketing machine.

"Outside of London and the major retail centres of the UK, though, it seems unlikely that this trend will gain widespread traction any time soon. Whilst rental levels in other towns are comparatively lower than London, any town or shopping centre rent per sq. ft. is going to be significantly higher than a traditional dealership site. Added to the fact that operators will still need the support of staff and off-site workshops to complement the sales team, it seems unlikely that dealerships will become a high street fixture next to Boots, HMV and Next any time soon.

"Rather more likely, however, is that further investment will be made in traditional forecourt sites to ensure that car buying becomes an ‘experience’ – in a similar fashion to many tech companies. BMW, for example, has taken a cue from Apple with the introduction of ‘product geniuses’ into dealerships, with the principal goal being satisfaction rather than commission based sales. Others are innovating with their out-of-town space. While not a traditional dealership, Carvana’s multi storey ‘car vending machine’ in Tennessee, offers a glimpse into a high-rise future for the traditional forecourt market where floor space is at a premium.

"We have already seen downward pressure from manufacturers resulting in significant upgrades to, or relocations of, dealerships in order to accommodate bigger and better product ranges and we expect to see that trend governing the market in the immediate future.

"A few premium exceptions aside, the drive for both customer experience and diversity of services will mean that the traditional forecourt will form a key part of the car retail ecosystem for the foreseeable future; complementing, not replaced by, its urban cousins in the West End or Westfield."

Like this? Read ICDP managing director Steve Young's views on "The Property Timebomb" here.