Parking Investment Under Attack
Coping with ‘Headwinds’ and ‘Tailwinds’
Parking investments and the overall parking industry are under attack from multiple sides. Ride-hailing services, such as Uber and Lyft, target special event transportation, driving down profitable transient parking demand.
Urban planners disparage the amount of real estate dedicated to parking cars despite the benefits that cities receive from residents, commuters and visitors.
Outspoken proponents of autonomous vehicles tout a future of urban landscapes with repurposed parking spaces converted to housing, small businesses and greenspace. In some cases, politicians jump on the bandwagon seeking opportunistic popular appeal.
Parking owners, operators and investors are justifiably concerned. The pace of change affecting the parking industry is accelerating, resulting in uncertainty about the future of parking. And public sentiment about the value of parking appears to be in a state of decline.
Is the future of parking as bleak as those outside our industry would have us believe? One could make the case that there are both tailwinds and headwinds for the parking industry.
Urban growth – By some estimates, the population of America’s cities will increase by nearly 100 million by the year 2050 as a result of the combination of urban migration from rural areas and immigration into our country. Overall, cities have better jobs, better health care, higher quality schools and higher living standards than rural areas. As the population grows and absent other factors, the demand for parking should increase – significantly.
Office densification – Corporations have recognized that real estate is one of their highest operating expenses. As telecommuting increased and flexible work schedules gained acceptance, corporate real estate managers became increasingly aware of how much office space was unused. The current trend is to provide less space per employee. Offices are replaced by open work areas and “hoteling” in which space is provided on an as-needed basis. Telecommuting impacts appear to have stabilized and in some cases reversed. 1 The net impact of office densification is that in many cases there are now far more employees in a given space than in the past. The overall net effect is a higher demand for parking.
Parking space requirements – While in the past, city regulators often developed zoning requirements with parking minimums. Today, many city regulators are requiring less parking or in some cases no parking. While this is a headwind for new parking construction, the result is increased demand for existing parking facilities, providing opportunity for price increases or potential capital investment to renovate parking facilities to add capacity through automated parking systems.
Ride-hailing services have eroded demand for event, hotel and airport parking. The President of Lyft, John Zimmer, has written about parking lots representing unused space and suggests repurposing parking spaces for parks. 2 Some opponents of parking have suggested repurposing parking garages as cemeteries.
Technology companies in the autonomous vehicles field paint a picture of a future with self-driving electric cars in which private individuals no longer own cars and, therefore, parking facilities are no longer needed.
They describe Transportation-as-a-Service (TaaS) as the next revolution in transportation. Not surprisingly, the two largest ride-hailing companies, Uber and Lyft, are active in the development and testing of autonomous vehicles, because the use of AVs would eliminate the cost of paying drivers to carry their customers.
Ride-hailing services have eroded demand for event, hotel and airport parking. The President of Lyft,
John Zimmer, has written about parking lots representing unused space and suggests repurposing parking spaces for parks.
What do these headwinds portend? Will ride-hailing services and TaaS eliminate parking? The short answer is no. They will, however, be factors as the parking industry evolves.
What does this future look like?
Electric vehicles will become much more popular and eventually surpass and maybe replace gas-powered vehicles. Evidence to support electric vehicle acceptance is mounting. France and the United Kingdom have announced bans on the sale of new petroleum-fueled vehicles effective with the year 2040. India has committed to selling only electric cars by 2030. China recently announced it’s considering a ban on gasoline-powered cars. Volvo has said it will eliminate manufacturing petroleum-only-fueled cars in 2019.
AV capabilities will continue to be introduced and receive greater adoption. Capabilities, such as collision-mitigating braking systems and lane-keeping assist, which are designed to make driving safer, will appeal to consumers. As more advanced AV features enter the market, the incremental costs for such features and consumer confidence will likely be constraining factors on adoption. High-profile incidents such as the driver who was killed when his Tesla, with autopilot engaged, drove into the side of a tractor trailer may shake consumer confidence.
Self-driving trials and pilot programs will increase in volume and spread to more cities. Trials are underway in a number of states today, and the U.S. House of Representatives recently passed the Self-Drive Act, which if approved by the U.S. Senate, would permit up to 100,000 self-driving cars to be tested on public roads annually. The bill also supersedes state regulations. Companies involved in testing would not be subject to state-specific self-driving car test rules. (For more information, go to Wired magazine’s report at www.wired.com/story/congress-self-driving-car-law-bill.)
Transportation-as-a-Service will become more popular. Ride-hailing services will flourish in cities but face challenges in suburbia and rural areas.
Many consumers will continue to view personal vehicle ownership as a highly desirable choice for transportation. Only personal car ownership offers the convenience of traveling when you want. And whether it is child safety seats, or multiple stops for laundry, groceries or other shopping, personal cars have a great advantage over other means of transportation, as the owner can readily carry possessions in his or her vehicle.
To prepare for the future, what’s a person in the parking industry to do? Carefully evaluate your situation and pursue value-added options.
For example, with greater adoption of electric vehicles, installing state-of-the-art EV-charging stations may represent a revenue opportunity. If ride-hailing services threaten your business, alternative pricing plans, reward programs or value-added vehicle-related services could retain profitable customers. Furthermore, continued leveraging of dynamic pricing model technology can enhance returns at peak parking times.
As TaaS becomes more popular, these companies will need places to park excess vehicles during non-peak hours. Adapting a parking facility to support TaaS vehicle maintenance may also be an option, as demonstrated by an agreement signed in June 2017 between Waymo and Avis for storage and maintenance of its fleet of autonomous vehicles. 3
In some cities, drop-off and pick-up points for ride-hailing services are causing traffic jams on the street. Working with city officials, ride-hailing companies and dedicating space within a parking facility could also potentially provide an opportunity for fee-based usage for pick-up and drop-off of ride-hailing customers.
Yes, the industry and our markets are changing. Parking trends are not “doom and gloom” as many in the press would suggest. In fact, with continued parking revenue enhancements and expense controls in place, parking investments represent excellent long-term investments for years to come.
Ted and Alan Anglyn are President and Vice President of Parking Property Advisors. Contact them through parkingproperty.net.
1 – John Simmons, “The Boss Wants You Back in the Office,” The Wall Street Journal, July 25, 2017.
2 – John Zimmer, “The Third Transportation Revolution – Lyft’s Vision for the Next Ten Years and Beyond,” Medium, Sept. 18, 2016.
3 – “Driverless Cars Boon to Garage, Parking Lot, CRE Businesses,” Situs RERC/Newswatch, July 7, 2017; reprinted in Parking Today, September 2017.