Demand for dealership property across the UK has remained very subdued over the first half of 2009 and is unlikely to see signs of recovery until the first half of 2010.

According to dealer property consultants Rapleys, the absence of both corporate and property activity is evident, with most dealers adopting a “wait and see” approach while focusing on bottom-line profitability.

One factor contributing to dealers sitting on their hands is the possible changes to Block Exemption Regulation next year which could affect manufacturer requirements on dealers.

Despite the uncertainty, Rapleys believes there are still opportunities to be had.

Peter Nicholas, Rapleys senior associate for motor trade and roadside, said: “If you’re in a position to expand, now is the time really.

If you pick a second-hand site up now, it’s going to be much cheaper than it was a year and a half ago. Groups like Vertu Motors are capitalising on the current state of the market.”

Nicholas said construction and land costs were still very high and it would be difficult to get the full value from building from scratch, so the second- hand market would be the best
investment.

Commercial property activity is not expected to pick up until the first half of 2010 and Nicholas believes recapitalised PLC groups and well-funded regional private equity dealers should emerge as winners by acquiring smaller dealers on much more favourable terms.

Rents and prices for larger properties in core markets are likely to recover more quickly, but prices for smaller outlets in outlying towns and districts will remain under pressure.

Operators are looking for leasehold solutions except where comprehensive redevelopment is required.

The property recovery

Key factors which will directly affect the property market over the next 12 months for dealers are:

The EC should announce its intentions for BER by the end of the year, thereby giving dealers greater certainty of their franchise relationship going forward into the next cycle.

• Dealers will need to adjust to materially lower vehicle registrations as it is unlikely that these will recover to two million units-plus per annum in the short term.
• The contraction in both the number of franchise sales points and number of dealers will continue.
• Certain weaker vehicle brands may withdraw from the UK market while those that remain will focus on smaller, more efficient models within their respective ranges.
• The trend towards multi-franchising will accelerate as both manufacturers and dealers squeeze costs, particularly at the “value” end of the market.
• Property prices and rents are unlikely to recover in the short term.
• Until funding becomes more readily available, dealers will prefer to pick up businesses on competitive and flexible leases rather than locking up capital in bricks and mortar.