Being creative with your real estate can be a great business boost
One interesting intersection in the environment that many dealerships are now operating in is that of rising property values, at the same time that supply chain issues have caused a shortage in inventory. Adding to this situation is a growing acceptance by consumers of a retail model that operates at least partially online.
When you put all these factors together, you get a dealership business that often doesn’t require acres of space for hundreds of vehicles on site, leaving many dealers with excess space on their hands, and many dealers with real estate with a sky-high value that doesn’t justify running a dealership on it.
To optimize land value, some dealers have chosen to sell off some of their urban property, keeping enough to showcase the most current models, and keeping the rest of their inventory on a much cheaper rural lot. Other dealers have come up with creative mixed uses of their lands. Greater Vancouver and Downtown Toronto are globally well-known for having exorbitant land prices, and this has inspired some ambitious dealership/mixed use projects.
Destination Auto Group was the first in Canada to successfully build and operate a full-service auto dealership on the podium with a residential condo tower on top, in Vancouver. “In context of fast-rising land costs and increasing densification, we worked collaboratively with our manufacturer partner and the City of Vancouver to do more with our redevelopment,” said Adil Ahamed, Managing Director at Destination Auto Group and 2022 CADA Laureate Award recipient, in an interview with Canadian auto dealer.
Not only did the development make the city happy by including residential homes, it was a very good move for the business as well. “Despite the smaller land footprint of the project, the form of the dealership allowed us to expand our service facility from six to 15 bays, create an open-concept showroom with lots of natural light and high ceilings, and use the multiple levels more efficiently to offer a fully indoor service reception experience, underground parking, and car detail/wash bays,” said Ahamed.
“With full-service car dealerships, this mixed-use development enabled us to meet OEM image and operational requirements, create more capacity and jobs through a more efficient design, leverage the air rights more effectively through permanent new residences in a market facing housing shortages, and create a brand-new experience for the customer; a fully-indoor automotive purchase and service experience that does not depend on the weather.”
Another notable dealership development is the DAG Autoplex in Toronto, the brainchild of Shahin Alizadeh, which was the first mixed-use development in Ontario that includes residential, commercial and automotive.
The idea took shape after he bought five acres of land in Toronto in 2011 next to his Downtown Toyota store. Now it houses 11 brands representing Toyota, Ford/Lincoln, Hyundai/Genesis, Nissan/Infiniti and Chrysler, Jeep, RAM and Dodge. He has a 120,000 square foot warehouse off site in which he plans to house inventory. He said the days of dealerships packed with automobiles on lots is a thing of the past.
“Our project, quite frankly, has become a talking point in terms of how things can be done. I think we’ve opened up some eyes to what is possible if you put a collaborative partnership process together to decide how we attack the next phase of our retailing in this country or this continent,” said Alizadeh in a July interview with Canadian auto dealer.
Jim Pattison Auto group recently finished one downtown dealership/residential/office development with their Toyota store in Vancouver, and has just announced plans of another large, exciting project in Victoria, which will incorporate five Pattison dealerships, residential towers and commercial space on an entire city block close to downtown.
The redeveloped Vancouver dealership, now the only dealership that exists in downtown Vancouver, was designed by Bing Thom and IBI Group. The new 120,000 square-foot dealership features three vertical showroom mezzanines connected through a Toyota-emblem shaped opening in the middle.
Underneath are five floors of state-of-the-art auto services and parking, and above are offices that are already full, including eight floors of LuluLemon offices. The store is part of the One Burrard Place development built with Reliance Properties.
Canadian auto dealer sat down with Bill Harbottle, Pattison Auto Group President, to talk about the Pattison Group experiences and philosophies on working with real estate.
“In urban centres where the real estate is so expensive and so valuable it’s hard to justify the cost of the real estate to operate an automobile dealership on it. So if you want to be in an urban centre you need to look at more of a mixed use type of development,” said Harbottle.
“When you look at an urban situation in the centre of the city, you can effectively reduce your cost of land and building by building more density. This is done by utilizing the airspace and the underground as we’ve done, and Shahin [Alizadeh] has done in Toronto with the DAG Autoplex. This idea has been in practice for years in Japan and some major cities in China, because it just makes sense to vertically integrate a dealership, in my opinion,” said Harbottle.
“You’re distributing your land cost over a much higher number of buildable square feet. For example, if your land cost is a million dollars, but you put 10 stories on it, all of a sudden your cost per story for land is only one hundred thousand dollars.”
The new Victoria project is more spread out, over one full city block. “Because in Victoria, land prices are very, very high,” said Harbottle. “So we’re looking to basically relocate five dealerships in one complex with service, and as well probably two residential towers, one with some commercial space, because that’s the only way it makes sense for these brands.”
The dealerships will have a limited number of vehicles on site, said Harbottle. “You won’t need, nor can you afford to keep all those cars there. You’re going to store them off site and bring them in as you require them. A lot of dealerships in major cities have done that. You know, the WEINS Auto group in Toronto has done that. O’Regan’s Automotive in Nova Scotia, they have vehicle processing centres where they ship their vehicles to, and they keep them there until they need them at the dealership itself.”
There will still be room for used inventory on site in the Victoria plans. “We’re going to have rooftop parking for pre-owned inventory.”
This kind of plan is much easier to get by the municipal planning process as well, as cities like mixed-use buildings. “Now, in most cases, the city’s municipalities like mixed use developments and would prefer to see dealers located in a complex like we’ve done rather than have a standalone dealership,” said Harbottle.
D’Arcy Ronan owns Autopropertiers.ca, a real estate marketing and consulting firm specializing in automotive. As property values go up in Canadian urban areas, he’s seen one other trend that should have a positive impact on auto dealers who keep their urban dealerships. “If I have an independent repair shop in an urban building, say 5,000 square feet, on a main street, the land is now worth much more than the business, so I would sell. The dealerships at the end of the day will probably pick up the repair business in a downtown core because of this, within the next five to ten years.”