Post-Crash Parking Market: Up, Down or Out?
May, 2010"The Post-Crash Parking Market: Up, Down or Out?” Longtime research director Dale Denda addressed that provocative question in a presentation at the 2010 Parking Industry Exhibition, sponsored by Parking Today magazine.
His overview of the market turned on how the parking industry fits into the larger economy and how economic factors, particularly consumer spending, are influencing what industry players are seeing now and will experience in the short- to mid-term.
Using the latest market feedback expressed in real data, Denda provided a national industry snapshot in terms of parking revenue and parking garage construction as two key indicators of activity.
First, a framework was offered to calibrate the current downturn in the parking industry itself. This followed on an overview by Denda of changes in marginal rates of growth in Gross Domestic Product (GDP) – as an ultimate measure of economic activity – caused by the 2008-09 financial panic and how this compared with other historical downturns.
He pointed out, moreover, that the present serious situation is being exacerbated by a confounding muddle – contradictory public banking policy – that may prove, in the short term, to be the 900-pound gorilla impeding economic recovery.
Denda highlighted the impact of the present “Great Recession” on consumer confidence and spoke of the phenomenon known as the wealth effect, which should be viewed as the key factor or indicator of future business for the parking industry.
He noted the actual numbers underpinning the seriousness of the wealth effect factor are a 25% decline in “personal worth” and the real 17% rate of adults in the U.S. economy who are doing something other than what they were two years ago – either due to underemployment or outright unemployment.
Recovery in these terms is simply not in the cards for now, and statistically measurable improvement in these indicators may not be seen until 2012-13, Denda said.
He added that not only is consumer spending the dominant factor in the GDP, the discretionary part of that spending also is a dominant dynamic in daily activity outside the working lives of individuals. He said this translates to travel and other financial outlays – all of which are associated with vehicle use.
This plays out, he explained, both in monthly occupancy rates in parking facilities and as a demand factor for expansion in the commercial real estate and institutional markets (new construction) – historically the biggest areas of expansion for the parking industry.
The message, Denda said, is that while the parking industry grows on seemingly subtle statistical growth in the GDP, it also survives in “the absence of growth to a great extent by servicing underlying economic transactions and lifestyle activity simply associated with demographics.”
Evidence of that comes in the form of statistical tracking of two key measures of industry health: parking revenue (operating income) and parking garage construction. While both show appreciable declines, Denda said, careful measurement of each also holds some reason for confidence that:
(a) industry revenue will not see precipitous decline but rather modest fall-off comparable to recent historical episodes;
(b) due directly to revenue shortfalls, expansion is occurring of the public sector, revenue-producing base (off-street parking expansion, new planned public garages);
These assessments explain to a certain extent the relatively normal rate of purchase/procurement of equipment/ technology seen over the past nine months, the industry researcher noted.
There was even a surprise, if only a modest one, coming out of the private sector, Denda said: The garage construction forecast shows nearly a 5 percentage point uptick in private, commercial garage construction (proportionate market share) in the mid-term.
The latter is particularly interesting, he said in his PIE presentation. “Financial liquidity issues rest at the core of the present Great Recession – and there is further cause for concern given a looming commercial real estate crisis that bears an uncomfortable resemblance to enfant terrible of the past 18 months: residential mortgage rate resets.
“Despite these issues,” Denda said, “a certain margin of growth based on changes in demographics and facility replacement requirements will occur in an economy as big as ours in the United States.”
“An interesting corollary in the form of evidence for this fundamental reality,” he said, “is the fact that the current geographic distribution of announced garage starts over the next 9 to 18 months tracks very closely with the 2002 – post-dotcom and 9/11 downturn – market.”
In wrapping up, Denda talked about prospects of federal stimulus funding and its effect on the parking industry. He struck a cautionary note.
Expectations for targeted federal aid in any one sector – let alone a single project or program – were and remain entirely exaggerated, he said. “Federal funding is not the answer to replace lost commercial transactions, because it simply is being spread too thin in multiple areas of our economy.”
But in that stimulus dynamic resides a benefit, he said. “If the parking industry is, in fact, so widely based, even the generalized effect of sustaining a multitude of state and local backed activities, including increased marginal employment, cannot be ignored by the industry.
“In fact,” Denda said, “direct financial aid to local jurisdictions can also be seen to have positive effect in that federal funding inevitably off-sets local monies in governments and agencies otherwise lost in the recession.”
The bottom line of Denda’s PIE presentation basically responded to the question of his topic: Is the parking industry, as we knew it, gone? The answer, his interpretation of the data indicates, is an emphatic no.
Dale Denda, Director of Research at the Parking Market Research Co., can be reached at email@example.com.