3 Trends Shaping Investor Interest in Automotive CRE

ATLANTA, GA – Sands Investment Group’s (SIG) Atlanta based automotive net-lease broker, Harry Archer and team featured in the WMRE 2022 Market Outlook.

Despite the far-reaching effects of the pandemic, the automotive industry remains rock solid as an investment. Tenants, ranging from auto parts stores such as Advance Auto Parts, O’Reilly Auto Parts, and AutoZone, to service centers like Caliber Collision, Jiffy Lube, and Firestone, have shown extreme resiliency in these difficult times.

With the predictable cash flow of this “essential business” and the propensity for fewer outside fluctuations, investors are gravitating toward the automotive sector, and are also finding that the pandemic has caused tenants to seek more flexibility with leases.

Over the past 12 months, service center properties have sold at an average price of $2.2 million and auto parts stores have sold around the $1.8 million mark, both providing attractive price points for private investors. The automotive sector is enticing to investors because the credit and returns are stronger than in other real estate investments.

Pandemic Brings New Customers to Sector
If you are an investor, automotive repair shops are gold. Because they are based on a need rather than a want, they are calculable and predictable as an investment opportunity. There is less overall risk, therefore, than in a retail shop or restaurant, which are based more on discretionary income.

The growth of this sector is undeniable. The total U.S. automotive aftermarket for parts stores and auto repair centers was valued at $75.31 billion in 2018 and is expected to grow at a 1.8% compound annual growth rate from 2019 to 2025.

Even in the most difficult times, consumers still need to restore their cars, and many will choose to do it by themselves in a difficult economy. In fact, The NPD Group found that during the COVID-19 pandemic, 12% of auto parts shoppers reported trying a new project or attempting work on their vehicle for the first time, bringing in new customers. The pandemic has shifted the way Americans use their time, and these do-it-yourself car projects are a boon to the automotive industry.

Low-supply, High-demand Territory as the Market Recovers

With supply chain issues clogging the new car sector, there is a heightened requirement for used cars, which ensures their value will continue to rise. And with used cars comes the need for maintenance and upkeep. Because the demand outweighs the supply in regards to automotive repair properties, the compensation on these properties is profitable.

Smaller 1031 investors experience success with automotive-related properties because they are bond-like in nature for those who are interested in investing their capital. According to our data sources, the average deal size for an automotive dealership was $3 million and a 6.6% cap rate.

Gaining a Competitive Edge Over Pure-Play E-Commerce With Innovative Service Models

Although e-commerce models have their place, especially in these pandemic times, brick-and-mortar properties will always win out because of the intangibles they are able to offer to the customer. When a customer comes in for a battery or cable, store employees can offer advice and services to return them to the road quickly. Services include testing and installing batteries, recycling of oil and batteries, scanning for check engine lights, the loaning of tools, and other essential help. Even if customers like to make the original purchase online, they can pick it up in the store to gain all of these perks.

Brick-and-mortar stores also gain revenue from commercial clients, like well-established mechanics. Because the orders have to be filled so quickly, traditional auto parts stores outpace e-commerce models because they can get parts to the mechanics in a few hours rather than a few days. Major auto parts stores have capitalized on this, building mega-hubs to stock popular products which can be quickly transported to mechanics, or even customers on the road.

Looking Ahead

As investors look out over the vast market of choices they have in which to invest their capital, the bottom line is that they are investing in a future cash flow. While looking at NOI to decide which investment is best, thinking ahead two, five, or even ten years down the road will help them determine the next step. In terms of the automotive industry, these investments will remain sound with a high yield because the demand is high.

Coming out of the pandemic is a critical time and automotive investors are changing the game with several prime investments. Whether gas stations selling the essential item to keep cars on the road, automotive parts stores restoring ailing cars, or car dealerships fighting the logjam of finding new and used cars, there are a plethora of investment opportunities in the automotive sector. Because of the supply chain troubles that necessitated more used car sales, investing in the automotive industry is a solid bet at this time, often offering passive income that is difficult to find in other sectors.

 

Harry Archer
Net Lease Advisor, Automotive Team
770.672.5931
harry@SIGnnn.com

 

 

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About Sands Investment Group

Sands Investment Group is a commercial real estate brokerage firm that specializes in the buying and selling of net lease properties for private investors and institutions across the United States. Since its founding in 2010, SIG has closed over 3,000 plus transactions worth more than $6 billion in 48 states. Advisors with the company currently have over $900 million in active inventory. As a leader in the industry, SIG was first to offer true sub-product type specialization. The firm’s experience in net lease, retail, office and industrial transactions is unparalleled. Sands Investment Group has offices in Santa Monica, CA, Charleston, SC, Charlotte, NC, Atlanta, GA, Austin, TX, and Philadelphia, PA.