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Car Wash Companies Make a Big Splash With Prime Real Estate

‘There’s No Virtual Car Washing,’ for an Industry Seen as a Solid Brick-and-Mortar Play
October 12, 2018

Autobell turned this former discount store into a thriving car wash location. Image credit: Halloleo.

Car wash operators are snapping up a record number of prime real estate locations across the country, in no small part because drivers can’t wash their cars online.

An all-time high of more than 100,000 car washes are open across the United States, according to a 2017 report from the U.S. Census Bureau. They're located in traditional car wash facilities and in prime retail space once occupied by banks and convenience stores that are transforming into car washes. Consumers spend $5.8 billion annually washing their vehicles, the Census showed, and it's drawing attention from new investors to the industry.

As retailers close brick-and-mortar stores because more Americans are going online to shop without having to leave their house, car washes are a shiny, new area of opportunity for building and shopping center owners trying to fill space with a business that can't be replaced by Amazon or other online retailers.

"There’s no virtual car washing -- yet," said Carl Howard, chief operating officer of Autobell Car Wash Inc., a private company based in Charlotte, North Carolina. "Some parties see car washes as a hedge against Amazon."

A 2018 report by industry trade organization Professional Carwashing & Detailing used the words "exuberant, extremely upbeat and positive" in describing the industry, saying the reason is simple: More people are spending discretionary income at car washes because of a booming economy.

"It’s on fire," said Mark Gerhart, a Denver real estate broker who focuses on car wash property sales.

Though the majority of car wash locations in the United States are owned and operated by independent companies, large private equity firms are also increasingly getting involved.

The industry was so lucrative to Los Angeles-based Leonard Green & Partners that it paid an estimated $400 million to $500 million for the country’s largest car wash operator, Mister Car Wash, in 2014.

The Tucson-based company, which operates more than 250 car washes in 21 states, has built numerous locations this year in several states, including New Mexico, Utah and Iowa. On its website, the company has an acquisition and development section in which it says it is actively seeking development opportunities.

"Private equity companies are interested primarily because it’s impossible to duplicate online," Howard said. "You have to go to a brick-and-mortar facility. We’ve seen several companies pop up in the past five or six years backed by private equity."

While car washes are bought and sold every day -- commercial real estate listing service LoopNet, a unit of CoStar Group, lists more than 500 such businesses for sale on its website -- as much as 70 percent of transactions in some markets involve ground-up development, Gerhart said.

As full-service car washes increase in size, some to two acres, land becomes a key consideration, industry experts said. Many full-service washes with hand drying and buffing -- as opposed to fully automated tunnel washes at gas stations or self-service express facilities -- can occupy more than 6,000 square feet of premium real estate.

Gerhart said it’s not unusual for retailers to approach car wash businesses in desirable locations and offer to buy them.

That’s what happened to Autobell when it opened a facility in the south end of Charlotte. The company originally leased the property when it was zoned for industrial use, but then a light-rail line was built directly behind the site. After that came mid-rise apartment buildings.

Howard said his phone soon began to ring incessantly with calls from mixed-use developers interested in buying out the lease.

"There’s no way we’re going to replace that," he said. "Growth in the area just exploded."

Autobell has also been opportunistic in buying and redeveloping property. It has transformed a former Capital One bank building, a former car dealership and what was once a General Dollar store into car washes. All are in what are considered prime locations.

The company bought the former 6,850-square-foot General Dollar store in Mableton, Georgia, for $1.1 million in 2008, according to CoStar data.

Shortly afterward, town officials put a stoplight in on the street corner, "and it went from a good location to a spectacular location, and we started getting calls from developers at that point," Howard said. The company still operates the car wash.

A friend recently redeveloped a former big-box department store into a car wash, he added.

Higher-end car washes can cost as much as $150 for full detailing and top-level packages, making them vulnerable to recessions when consumers tend to cut back on discretionary spending.

"There are only so many cars to wash," Gerhart said, and some operators, particularly those in less desirable locations, tend to struggle during economic downturns.

That's why location is so important, he added. It's not surprising that car washes in premium spots tend to do well. Those in lower-traffic areas, or dilapidated strip malls, usually suffer the same fate as other retailers in those areas.

"They will die slow, horrible deaths," Gerhart said.

Rob Smith, National Retail Reporter  CoStar Group   
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