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New block exemption likely to stimulate property market

The tail-off in showroom property demand experienced over the last quarter of 2010 has continued into the first quarter of 2011.

Mike Pearce, Rapleys partner, motor trade and roadside team, told AM: “The big issue on the horizon for dealers is the renewal of Block Exemption Regulations for new vehicle sales contracts, which are due to come into force in May 2013.

“Those manufacturers introducing new dealer contracts are required to give two years’ notice, so it is likely this will stimulate activity as the year rolls on.

“Equally, there are several well positioned dealer groups with strong manufacturer relationships and healthy balance sheets who are ready to pounce for the right opportunities.

“Both premium brand franchises and the larger volume brand franchises remain in strong demand, particularly in the larger towns and cities which offer significant trading opportunities.”

The showroom market has been mainly driven by established players or by sponsored dealers with manufacturer support.

Pearce said: “There are few new entrants into the market and further consolidation on what remains a fragmented market is most likely to occur.”

Recent data collected by Grant Thornton reveals that the top 10 dealer groups increased their collective turnover by 4% in 2010, compared to the same period the previous year.

He said: “It seems likely that this trend will continue with the larger dealers securing a greater market share at the expense of smaller independent operators.

“Against this backdrop, showroom property prices and rents remain under pressure in what is a thin market. There are few signs of upward movement in prices, but equally we have not seen significant further falls.

"On the contrary, we see an encouraging resurgence and interest in showroom property from alternative roadside occupiers predominantly in the retail and fast-fit sectors.”

Dealers wanting to exit from underperforming sites are being advised to look further afield to find buyers.

Supermarket groups are still looking for dealer showrooms for development of new shops and companies such as Majestic Wine, Topps Tiles, National Tyres and Halfords are all seeking well located showroom outlets.

Pearce said: “In terms of inward property investment the cost of entry for dealers representing premium brands remains as high as ever.

“Manufacturers chose not to push dealer standards in the teeth of the recession, although this appears no longer to be the case in the run up to 2013. In the main, property facility requirements for premium brands are moving towards ever larger bespoke facilities.”

At the other end of the spectrum multi-franchising on a single site for value brands is becoming more accepted.

Pearce said: “Manufacturers representing these brands (and those brands with limited UK market share) are seeking dealer partners who can provide them with a cost effective means of representation in key markets, which would otherwise not occur.

Equally, dealers looking to maximise return from their property assets can no longer afford to represent these brands in standalone showrooms so the benefit of multi-franchising works for manufacturer and dealer alike.

“As a consequence, properties with the flexibility to represent a number of brands under one roof and yet share back office, parts, workshop and administrative space should become more attractive for continued automotive use beyond 2013.”

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