Burrard Place, under construction until spring 2019, is one of downtown Vancouver’s largest single developments. The half-billion-dollar project will not only contain two mixed-use towers (one reaching 54 storeys) but also a multistory Toyota dealership tucked into the glass and ostentation.
While suburban car dealerships, with their sprawling parking lots stuffed with the latest stock, are still in business, this is the new reality in Canada’s city centres.
Dealerships, particularly in densely populated urban centres, are changing their setup. They’re going up instead of out and, in some cases, trading showrooms for virtual screens. Experts say the high-rise dealership is a reality in locations with high property costs and limited space, although many question the move by some car makers to abandon bricks and mortar in favour of the virtual, saying it goes against consumer behaviour.
Finding affordable space for car dealerships, particularly in Vancouver and Toronto’s hot property markets, is tantamount to finding an affordable single-family dwelling. It’s almost impossible. Dealers in these cities are forced to maximize their square footage, go vertical or simply move out of their sought-after locations.
If they want to stay in the city, “They’re having to get creative,” says Struan Saddler, a vice-president with commercial real estate service Avison Young in Vancouver who specializes in industrial land.
The most popular solution is the vertical dealership that mirrors a sleek downtown office or condo building. Already a staple in other urban centres around the world, Canada is simply playing catch-up.
“Vancouver’s Burrard Slopes area is a really good example of what you see around the world,” says Mr. Saddler. The area, which runs along Burrard Street from 8th to 2nd Avenue, is home to most of the city’s luxury-brand car dealers. The land prices are at luxury levels, too. The land assessment for the Jaguar Land Rover dealership at 1730 Burrard St. is almost $24.7-million, according to B.C. Assessments. The building, meanwhile, is assessed at $84,000.
Another creative dealership solution used in Canada’s high-value areas is the 20-year land lease, but it does come with its own set of risks. “At the end of the 20 years [the dealership] can renew the lease or the landlord can say, ‘See you later,’ and ‘The building is mine,’” says Mr. Struan.
“Tens of millions of dollars to build these buildings and then you could basically be left with nothing,” he adds.
Despite the high property costs, car dealerships continue to pop up all over downtown cores. The needs of these dealers have changed with the increase of technology and some can get the job done in a coffee shop-sized space.
Tesla, the maker of luxury electric vehicles, has little more than a storefront with one or two cars on display, with other vehicles viewable through touch screens. Last year, Cadillac announced its Project Pinnacle, which proposed future dealerships with virtual reality experiences and no inventory. At the same time, German car maker Audi unveiled its virtual reality experience that allows customers to do a walk-around or have a seat in the vehicle’s cockpit.
This push toward the virtual not only provides the customer a unique experience, but it also requires a smaller footprint compared to a traditional showroom, cutting down on overhead and operating costs.
If car manufacturers did abandon the traditional concept of the dealership, it could mean higher profits for them and, potentially, deals for buyers. But the human desire for the tactile might still stand in the way.
“Today’s consumer has spent a lot of time researching the brand, the specific model, the colour variation, what options they want and reading Consumer Reports online,” explains Milton Lamb, president and chief executive officer of Automotive Properties REIT. His publicly traded company owns several properties that house dealerships all over Canada, including Porsche Centre Vancouver, Calgary BMW and Triple Seven Chrysler in Regina.
While so many aspects of the car-buying experience have been digitally transformed, technology has yet to trump the test drive.
“Some of buying a car is still visceral,” says Mr. Lamb. “You touch it, you feel it, you like it, or you don’t.”
For this reason, the future for car dealerships is most likely a hybrid of the online and dealership experience. “Auto retailing has been ahead of the curve when it comes to bricks and clicks,” says Mr. Lamb. “Some dealerships are still being asked to increase the size of their real estate as people are still spending significant money on cars.”
Those with coveted downtown locations are making the most of what they have, he adds, as it’s difficult to move or expand in metropolitan cores thanks to specific zoning for auto retailers.
In 2014, Centre-Ville Volkswagen in Montreal stacked its inventory on huge steel shelves, running nine lanes across and four levels high, which can hold almost 150 vehicles. It was this dealership’s solution to the need to expand in a jam-packed urban setting.
“When the price of real estate and the level of intensification around you continues to grow and grow and you’re seeing greater urban population growth – and that’s true in Canada and worldwide – you’re going to see people maximize the utility of the real estate that they already have,” Mr. Lamb says.
With customers doing their homework before hitting the dealership, Chris Sutton, a vice-president of U.S. Automotive Retail at J.D. Power, agrees there is less need to have inventory on-site.
“There’s an idea of a smaller footprint, where maybe you have fewer vehicles on the lot, and you may have some type of service facility, but maybe where you have the work done is different,” he says, adding that a large portion of car makers’ profits come from their service centres. “But you don’t have to have [the service centre] and all of your inventory at the primary showroom, as these can be done at a lower-cost location.”
When it comes to a fully virtual showroom, he echoes the others. “The idea of a completely virtual experience, I don’t think, will fully happen.”
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