PRAXIS3 design concept for multi-use automotive retail facility
What’s being done in dealership design today to address where the automotive marketplace is moving and ensure that dealers are best positioned to meet tomorrow’s needs?
Smith: In major metro markets, vertical development is starting to take hold in auto retailing, and that helps counter high land prices. Dealers are also re-evaluating the space devoted to service versus sales. In select, densely populated, urban areas we’re seeing lifts used to put service bays on the second, third, and fourth floors, with mixed-use residential on top and parking somewhere in between. In coastal areas parking decks can help protect against hurricanes and in areas prone to hail damage, they can help you save on insurance costs.
Stancill: Online sales, lower vehicle inventories, and consolidation all make it easier for dealers to downsize their variable operations while building out their fixed operations. It costs less per square foot to build service and parts space than showroom space. In fact, a lot of dealers who’ve completed recent facility initiatives are ready to further expand their fixed operations—in some cases, more than doubling the size of a service department built just a few years ago. We’re being very thoughtful about putting infrastructure in place as we plan dealerships, thinking about the location of utilities and how the building components are set up to make future expansion easier and less expensive.
Planning dealerships for service growth from the ground up is a smart approach. For example, we always try to work with the dealer to think about future parts and service expansion during the initial design to make tomorrow’s expansion as painless as possible. We’re also seeing a greater investment in technician spaces, such as larger and more comfortable locker rooms and break rooms. The goal is to look at anything that will help attract and retain top tech talent in a highly competitive labor market.
There’s also a focus on designing parts and service departments to accommodate EVs with particular attention to the safe storage and handling of EV batteries. The “skateboard” batteries in EVs are almost the size of a car. They’re exceptionally heavy, and the parts area in a typical dealership isn’t designed to receive or store them. Plus, batteries pose additional safety and fire hazards that need to be considered in facility designs.
What challenges are dealers facing today when they undertake dealership construction projects?
Smith: We know EVs have fewer moving parts than internal combustion engines, but with the unknowns about EV service patterns and adoption rate, deciding on the optimal number of service bays may be a bit of an educated guess. In select instances when you’re moving service areas higher, you’ll also need to plan for additional infrastructure to support the added weight of EVs.
The faster chargers that OEMs are requiring dealers to install have much higher power needs and will require more investment. A Level 2 charger may cost $30,000 but installing Level 3 chargers can cost $500,000 – 700,000 from start to finish. Coordination with utility companies can be a lengthy process—the fastest chargers draw enormous amounts of electricity, and local utilities sometimes require a dealership to upgrade its power-handling capacity first. Sometimes the utility provider can’t provide enough power without a line extension or other major work. After learning what’s required, getting the permits and components lined up for a charger installation adds significantly to your project timeline. Also, solar panels could carry some of the load, and depending on where you’re located, there could be tax rebates or grants to offset the cost of installation.
Stancill: One of the big problems now is scheduling projects. Everything takes longer than expected because the construction world has such limited availability, whether it’s people, or products, or services. With architects backed up for months it’s often impossible for dealers to complete a facility by the dates specified in their OEM agreements.
Hard bidding, which many dealers strongly prefer, makes it more difficult to complete a project on time. These days most contractors simply won’t bother hard bidding a project—even a very lucrative one. They’d rather be a partner in figuring out how to compress the schedule and lower project costs without the risk of a fixed price. Dealers should be flexible in negotiations and be prepared to make their case for extended project timelines to OEMs.
How should dealers think about engaging the right resources and expertise—from planning and design to financing and construction—to get the most from their development investment?
Pella: Reimagining the dealership space mandates conversations with partners and municipalities about what’s already there and what the real estate market fundamentals are telling them. We see positive fundamentals for commercial real estate over the long term. Higher interest rates have slowed the market, but there are still good opportunities for certain asset classes in the right market. It’s all about connecting with a partner that knows the local market to help you navigate the overall development process, including planning questions—particularly for mixed-use developments—that cover everything from zoning and parking to individual ownership arrangements and dealership access easements.
Stancill: The considerations needed to make sure a deal is supportable, marketable, financeable, and profitable can seem overwhelming. A lot of dealers may be interested in mixed-use development but hesitate to get out of their lane. They know dealerships, not commercial real estate. What can their land support, and how do they meet future spatial needs? Thinking through these questions—with the right team at the outset—helps get a project designed, zoned, developed, managed, and financed.
Pella: In the mixed-use space you’ve got to consider factors like market rents and lease-up trajectory (for commercial space), along with ground-up construction risks and various proposed uses. Compared to standard dealership buildouts, mixed-use developments require a more complex financing structure for the construction phase and an active commercial real estate oversight during each phase. The ownership structure and capital mix could provide your dealership—or your family—with opportunities to diversify your portfolio and generate additional returns.
Smith: Truist can connect dealers with commercial real estate specialists to help determine the best way to enhance the value of your property and to work with your municipality on zoning and permitting. We’ll look at various ways to structure financing to achieve your project goals, minimize risk, and cover all the angles—at each stage. If you’re thinking about a construction project, talk to someone on the Truist Dealer Services team who can assemble Truist resources to bring you the perspective and expertise you need.