Going up isn’t new to automotive retailing. Urban dealerships have been using vertical development for years as a way to increase display and operational space when available land is at a premium. But unlike the plan in Walnut Creek, the upper floors of vertical urban auto dealerships don’t bring outside revenue to the business, said Ferrara, whose firm has designed a number of multifloor dealerships across the continent.
“The big difference is that we’re going vertical on many of these [projects] to get our parking capacity. So what we’re doing is effectively building land in the air at a great multiplier from what a surface parking lot costs,” Ferrara said.
“Sometimes that’s because there simply is no other land available or it’s so far away from the dealership that operationally, it’s a nonstarter.”
But Ferrara said the Walnut Creek proposal has the ability “to stack another income source on top” of the dealership instead of just being a way to build inventory space.
While the proposal for Toyota of Walnut Creek might be the largest such mixed-use development in the country, it wasn’t the first — and it likely won’t be the last.
“This is certainly a trend that we expect to see in the next decade in urban centers,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors in Irvine, Calif., which assists dealers with buy-sell transactions.
“It has to be quite an urban setting for that to pencil because it’s very expensive to go vertical, but certainly, we’ve seen examples of that.”
Kerrigan said dealers in Honolulu, New York, Los Angeles and Toronto already have had housing of one form or another above their stores “100 percent driven by land values.” She said that as dealerships and automakers reconsider how big their store footprints need to be in a post-COVID-19 digital retailing world, mixed-use developments such as Toyota of Walnut Creek might become more common — but probably only in certain areas.
“Real estate prices continue to rise, and because of the historically low interest rates, we’re seeing a lot of asset inflation right now,” she said.
“It’s an interesting time to take a lot of risk on real estate.”
