By Daniel Flynn | JLL
April 01, 2020
The purpose of this analysis is to better educate developers and investors on the various characteristics that go into how investors value parking revenues when sold with income producing properties.
As most investors and developers know, parking is a critically important aspect of development and land use in virtually all cities and can significantly impact the growth of cities. The availability and quality of parking options impacts the way corporate tenants and retailers conduct their site selection and where developers build new projects. According to the International Parking Institute, the parking industry generates more than $20 billion annually in revenue and the United States has more than 105 million parking spaces along with five million parking meters. The purpose of this analysis is to better educate developers and investors on the various characteristics that go into how investors value parking revenues when sold with income producing properties.
The recent trend towards urbanization and higher density environments have significantly elevated the importance and desirability of structured parking, particularly in markets that do not boast a viable light rail or transit system as an alternative. Additionally, as more development occurs in urban areas, many of the previously serviceable surface parking lots in urban cores have been replaced with new buildings, resulting in a further decline in an area’s overall parking ratio. Collectively, this places upward pressure on a parking facility’s value, both in terms of the consumer and the investor. Monopolistic industry features are also conducive to the rising value of parking; many markets are controlled by only one or two parking operators. Lastly, with the rise of co-working and open-space layouts, office buildings are becoming increasingly dense, further emphasizing the importance of parking availability.
The above notwithstanding, there remains perceived risks within the parking industry. Shifting consumer preferences and the subsequent forecasted decline in car ownership serve as a potential threat. Additionally, the industry also faces a rising wave of competition from ride-sharing companies, improving mass transportation (light rail) and the promise of autonomous vehicles from virtually all automobile manufacturers. Each of these competitive forces could serve as a potential disruptor in the parking industry, with some markets already experiencing an impact.
Ride Sharing:Services like Uber and Lyft reduce the need for car ownership, especially in urban areas, while also reducing demand for parking spaces by simply chauffeuring passengers who historically may have chosen to drive themselves to their destination.
Mass Transit: Most large cities are implementing progressive plans to improve regional connectivity to reduce traffic congestion and promote environmental stewardship. As a result, many metropolitan areas have improved access to suburbs and nearby residential hubs via alternative modes of transportation.
Driverless Vehicles: Many automotive manufacturers expect to be producing highly autonomous vehicles in the next five years. Driverless vehicles are capable of parking themselves and would likely park in “urban edge” locations allowing centrally located parking garages to be redeveloped for a higher use. Furthermore, the lack of human presence within parking facilities could reduce the required width of parking spaces and other facility features such as lighting and ventilation.
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