Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
Empty parking garages are more than just evidence that working from home has killed traffic into office buildings, hotels and retail properties.
Those empty garages have huge financial implications on the commercial parking industry. Their operators are facing a financial crisis, laying off thousands of workers, and building owners stuck with unused garages are losing millions and wondering if they should repurpose the space.
Commercial parking companies have seen revenues drop 70%-90% since the start of the pandemic.
Companies are taking huge losses
The country’s largest publicly traded commercial parking company, SP+ Corp., reported a $173M loss during the first nine months of 2020 after posting a $40M profit during the same period in 2019, with executives blaming the loss on the pandemic.
San Diego-based Ace Parking, which has been operating for 70 years, had gross revenues of more than $1B in 2019. In 2020, it brought in roughly $100M.
Work from home means parking demand may never be as strong again
Office owners said while most companies have kept workers remote during the pandemic, they have largely maintained their leases and made rent payments.
But whether parking lot operators manage a garage for an office owner or lease it, none of them are bringing in close to the revenue they need to operate long-term.
The current situation is more dire for parking operators than it is for office operators. Nobody is commuting. A number of parking operators have gone bankrupt.
Many others are converting their lease agreements to management agreements to be able to pay a percentage of what they collect.
The way we pay for parking may have to change
For decades, the revenues parking decks and lots brought in were a commodity…predictable and safe.
Like other industries, the commercial parking community has had to scramble for alternative revenue streams…away from the standard monthly, daily and hourly fees they exact from commuters, tourists and shoppers, especially as flexible work schedules and work-from-home arrangements may become a more permanent fixture in corporate America.
Parking operators are trying to adjust now to prepare for changes in office-using behavior.
“One of the things that we’ve prepared for is not just offering the standard monthly parking,” SP+ Chief Growth Officer Jeff Eckerling said. “We have to have alternative products that accommodate people who are coming in three days a week.”
Alternative uses
Other parking companies, like REEF, have begun renting out their surface parking lots for alternative uses, such as ghost kitchens, yoga studios and COVID-testing sites.
Many doubt every downtown office parking garage today will stay that way in the future.
Zoning requirements require a certain amount of parking, but those requirements were put in place years ago when the car was king. But the car is not king, many people don’t want to drive, they want to use the train, Uber or whatever, but not park.
One irony from the pandemic could be that commuters return to driving single-occupancy vehicles to get to work instead of subways and other forms of mass transit out of lingering concerns from the coronavirus.
I think we will see some of that in some of the heavy mass transit cities where you have white-collar workers who take mass transit. I think some of them are going to drive. I don’t know if it’s permanent, but it is certainly for some period of time.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, entrepreneur and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and Florida markets.
He’s earned the revered “CCIM” designation which is awarded to the top 6% of all commercial real estate brokers.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com