A ‘perfect storm’ of COVID factors driving ‘amazing’ demand for car dealership investments
Offering long-term leases, large landholdings with high-profile exposure, secure income and strong future development prospects, car dealerships have always been desirable investments, but right now they’re hotter than ever.
Industry experts say a “perfect storm” of factors, including supply and logistics constraints, local demand for interstate road holidays, and a drop in public transport use has seen car prices and sales rise exponentially, driving competition for freehold car dealerships across the country.
REA economist Anne Flaherty said commercial property with “defensive income” – from low-risk, high-quality tenants with long weighted average lease expiries – such as vehicle dealerships, have long drawn investors’ eyes.
“The COVID pandemic has undoubtedly driven demand in this space even more, and anecdotally speaking, it may even be coming from investors who previously relied on residential properties or the stock market to provide income, who are now looking to achieve higher yields through commercial [property],” she said.
Scott O’Neill, founder of buyer’s agent firm Rethink Investing said demand for dealerships was in line with growing interest in other commercial property types, such as industrial, retail and medical.
“The reason for this spike in demand is mostly due to cheap money, low stock, more interest in chasing the high yields and commercial investments slowly becoming a more mainstream investment class for more than just institutional level investors,” he said.
A case in point of the strong appetite for car dealerships is the ‘pretty amazing’ interest in the 6,953sqm freehold Chadstone Ford, Hyundai and Hungry Jack’s investment, which comes with new 15-year leases and fixed 2.5% rent increases.
Burgess Rawson partner Billy Holderhead said the site, 13 kilometres from Melbourne’s CBD and close to Australia’s largest shopping mall, Chadstone Shopping Centre, ticks all the boxes for “savvy investors who have turned to the automotive sector” over the past 18 months.
“I believe it’s the best thing that’s come onto the market (in its category) for at least the last five years, it’s brilliant. Not just in terms of the length of the leases, but fixed increases, the size of the site, the zoning, the location, the land itself, the whole package,” he said.
“With the expressions of interest to close Friday, we have already tipped over 300 enquiries and we believe it will go for between $25 million and $27 million. The competition is pretty fierce.”
Mr Holderhead said the high demand for cars – which has seen some dealership profits double or triple in the past 18 months – has translated to increased appeal for automotive investments.
“There is a very real influence, but also the underlying value of the land in this case is too, so you’re not just buying an income stream, but also getting real, genuine value in the physical land.”
Mr O’Neill said with exposure to the “resilient fast-food sector via Hungry Jack’s and a massive land component in a fast-growing market”, the Chadstone investment was appealing.
“Having brands like Ford and Hyundai on long leases should make even the most conservative investor feel comfortable. However, what makes an investment like this stack up for me, if I was an investor, is you will own a freehold 6953sqm landholding on a main road with commercial 1 zoning, so over time, the land will underpin the value of the asset.”