Spotlight: Automotive Market Commentary

Introduction

According to Autotrader, the majority of car buyers are still ‘walk-ins’ who have done their research online but don't submit a ‘lead’. This activity is underpinned by improved choice; according to MHA, there are now 425 car models available to choose from (up from 385 in 2019), and the number of brands has increased by over 35% from 45 in 2019 to 70 in 2025, and so traditional customer brand loyalties are changing.

This sets the scene for a period of exciting recalibration in the UK Automotive sector, responding to a combination of regulatory reform, shifting global economic conditions, and an expanding range of car manufacturers and vehicle models, all painting an increasingly optimistic picture.

This is reflected by the number of vehicles on British roads reaching its highest-ever level in 2024, rising by 1.4% to 41,964,268, according to data published in April by the Society of Motor Manufacturers and Traders (SMMT), with cars up 1.3% to 36,165,401, and vans up 1.8% to 5,102,180 units. The journey from internal combustion engine (ICE) to full battery electric vehicle (BEV) adoption continues to be the industry's defining transformation, and as electric vehicles (EVs) have become more affordable, the number of EVs in use has surpassed one million, with over 1.3 million now on the road.

New and used car sales

The new car market grew 6% in Q1 2025 and surged 12% in March, marking nine successive quarters of sales growth as the new car market’s recovery fuels availability. BEV sales rose by more than half to reach record volume and market share, and the SMMT is reporting 2025 new car registrations expected to now rise 0.6% to 1.96 million. Within this, BEV registrations are expected to rise 21.0% to push their market share to 23.5%. The implementation of Vehicle Exercise Duty (VED) changes affecting all new cars, including the Expensive Car Supplement, which became applicable to many new EVs from 1 April, pushed transactions into March as shrewd buyers got ahead of the tax increases.

The used car arena is proving very resilient and is recognised as a particular area of revenue enhancement for dealers with scale and technology, offering the opportunity for cost reduction. Used car sales saw a 2.7% rise, with 2,020,990 transactions in Q1, exceeding 2,000,000 for the first time since pre-pandemic 2019. This compares with 580,502 for new car sales over the same period, reflecting a 3.5:1 used-to-new sales ratio, highlighting the importance of used car sales to dealer profitability. Specifically, used hybrid sales surged by 30.2%, reaching nearly 100,000 transactions.

The Covid-era shortfall in used vehicle supply is now subsiding, and the used car market is resuming greater pricing strength. There is now more stock available, and dealer profit can be retained by improved technology, such as dynamic pricing (regular pricing updating based on enhanced data feeds). Higher-value one-to-two-year-old cars are now becoming more readily available, and profit margins for dealers are improving, closing on pre-Covid levels. Overall, SMMT data shows a positive outlook for the used car market in 2025, with record sales of second-hand EVs and strong demand for these vehicles at lower price points.

ZEV mandate relief

In early April, the UK Government acted to stabilise BEV transition with the reinstatement of the 2030 phase-out date for new petrol and diesel cars, accompanied by new flexibility: full and plug-in hybrids can now be sold until 2035, reduced fines for ZEV mandate non-compliance, more flexible credit borrowing, and targeted infrastructure investment through the Automotive Transformation Fund (ATF).

There is now a huge range of BEVs on the market, with more than 130 models available – including an increasing number at lower price points – the result of massive investment by manufacturers to offer electric options for all consumers across all segments. Renault, by fully embracing the BEV transition, experienced significant growth, achieving a 36.25% year-on-year sales increase in 2024. Dealers are also adapting by investing in charging infrastructure, advanced servicing technology, and sustainability initiatives to align with evolving consumer and regulatory expectations.

UBS is forecasting an EV share of 20% (of global new car sales) in 2025, and a 50% share in 2030 (46% BEV, 4% PHEV). The combination of (1) the technology/cost breakthrough, (2) rapidly increasing consumer choice of attractive EVs, and (3) a regulatory environment, is favouring EVs over ICE cars in the medium term.

The arrival of the Chinese

As OEMs and dealers recalibrate their operations, consolidation remains a dominant trend, with multi-franchise sites and repurposed properties becoming more common. The entry of Chinese EV brands, such as BYD, OMODA and JAECOO, ORA/Great Wall, Leapmotor, and others to come, including Changan, XPENG, and Dongfeng, is reshaping the market, driving down pricing and filling dealership vacancies left by legacy brands scaling back their physical presence, for example, BYD has recently announced a targeted doubling of its network to 120 outlets by the end of 2025. This represents a seminal shift in the market as these companies arrive with strong homeland track records:

• 52% of new vehicles sold in China were electric in 2024.

• BYD sells a third of its vehicles in the Chinese market.

• Chinese manufacturers are producing vehicles that are 30% cheaper and 40% faster to market than traditional OEMs.

• There is a growing focus in China on technology in EVs to differentiate themselves from competition.

• Tech focus is now on autonomy with AI-powered decision-making and self-driving tech rollout (Level 2+).

• Battery costs are coming down, and the battery chemistry is changing. It is currently lithium, but the future could be sodium or solid-state batteries. CATL and BYD are the world’s biggest battery producers.

^{Source: Autotrader}

Mergers & Acquisition Activity

Overseas dealer groups, particularly from North America, the Middle East, and Asia, continue to accrue UK dealer groups, with the UK’s high proportion of freehold dealership properties and underpinning alternative use potential a key driver behind this activity.

Trade Headwinds from the US

US President Trump’s reintroduction of widespread tariffs – including a 25% duty on all foreign-made cars – has triggered market volatility and uncertainty. These protectionist measures could weigh on global growth and impact BEV supply chains, particularly for those reliant on Asian imports, with knock-on effects for European markets if retaliatory tariffs are imposed. Some alleviation was provided on 8 May when the Government announced that for the UK’s car exporters, the tariff on UK car imports into the US has been cut from 27.5% to 10%, although the lower rate will only apply to the first 100,000 vehicles exported to the USA annually. However, there remains consistent uncertainty about the impact of trade tariffs across the globe.

Dealer and Property Market Resilience

On the ground, the car dealership property market is proving enduring, with dealers adapting spaces to suit evolving sales models (including direct sales by OEMs to customers) and accommodating the new Chinese entrants. Many legacy brands have reduced their new car display footprint within dealerships, enabling property repurposing and opening up opportunities for multi-franchising dealers. This further consolidation will release some dealerships providing ready alternative use opportunities for the likes of discount food stores, care homes, self-storage, EV charging hubs, and more; however, the attrition rate is much reduced than historically (see Figure 2). In this respect, the underlying alternative use potential and value of most dealership properties is an enduring attraction.

Car Brand Hierarchy

The car distribution market across the UK is divided up by car manufacturers into exclusive ‘dealer areas of representation’ (DAR) or, more commonly known as ‘market areas’, which are geographical territories mainly categorised by postcodes within which dealers have exclusive rights to sell and distribute a particular car brand’s products and services.

We consider the car brands to consist of six tiers, with Automotive affordability flowing down the franchise hierarchy. The further down the hierarchy, generally, the less property affordability the brand can absorb – this is illustrated in Figure 3.

Investment Market Commentary

Prime yields have remained stable through Q1 2025, and there has been competitive bidding for assets, particularly on those in strong locations, housing highly rated franchises and offering good covenants, attracting the strongest attention. Overall, the sector has seen the ‘all car dealerships assets’ average yield shift outwards, reflecting declining average lease lengths compressing, with many dealers now opting for a ten-year term certain on new leases/lease renewals.

In the graph below, we can see the comparatively stable performance of car dealership investment pricing over the last ten years when compared with Total Returns (a measurement of Capital Growth and Income Rent) from the broader commercial property market. In Figure 4, we identify the emerging convergence of prime and secondary car dealership property pricing, reflecting the erosion of cash institutional engagement with the sector as lease lengths on offer compress. Sitting behind this is a stable average ‘All Property’ blended yield of 6.25% over the last 5-, 10-, and even 15-year periods.

Car dealership investment volumes increased by 10% in 2024, with yields improving as interest rates eased and the appreciation by a widening investor pool of the enduring nature of the sector. The popularity of smaller lot sizes suggests a more granular investor appetite, and the average lot size reduced from £7.23 million to £6.23 million. Yields stabilised as interest rates dropped from 5.25% to 4.25% (as at May 2025).

Typical car dealership lease terms remain attractive to investors, with most offering inflation-linked returns, which are appealing to private buyers, who led transactions at 48%, followed by car dealers (41%) and financial institutions (11%). Regional activity was strongest in the South East and London, accounting for 28% of sales, while prestige brands like BMW, Audi and Mercedes dominated investment transactions.

Conclusion

Looking ahead to 2025, the Automotive sector’s stability, typical lease structure, covenants supported by world-leading brands, and emerging opportunities from BEV expansion, regulatory shifts, and property consolidation, represent attractive investor credentials. Additionally, alternative uses for dealership sites provide further asset enhancement potential. As BEVs become cheaper, alongside offering greater choice and enhanced battery technology (range and charging), and the world adapts to the new global order and trading patterns, the agility and adaptability of the Automotive genre sets an encouraging and resilient destination for investment.

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