From the inception of the first attended parking lots in the 1920s, the industry enjoyed huge success, fuelled purely by population growth and surges in car ownership along with rising consumerism. Fast-forward fifty years later and between 1978 and 2019, it’s estimated that 40% of downtown Toronto surface parking was redeveloped for other uses including housing, recreation, offices and tourism. This equated to an additional 230 million square feet of building space; it doesn’t tell the full story however of how much parking was created underground across the same period. The need for parking was still very much evident during this time, but surface parking is possibly more dispensable than other property when land is scarce.
This illustration with the parking lots shown in black compares surface parking in Toronto in 1978 and 2019. Parking lots are shown in black.
Fast-forward to the late 2000s and a few signs of disruption started to emerge in the parking market by way of ride-sharing startups, improved public transport and increased cognizance around environmental issues. These and other factors started to impact how people commuted into cities and in the five years up to 2020 we began to see a very slight cooling-off in parking demand overall. Then came COVID-19.
What happened to parking lots during COVID-19?
Unsurprisingly, the onset of the pandemic caused a massive decline in demand for parking as we were all restricted from attending public events or going to work in a city office. Very little of a parking business’ expenses stem from headcount so reducing costs was somewhat futile and with low workforce capex leaving them ineligible for government relief funding, just like many others, management companies had to quickly pivot to generate revenue in the new market conditions.
For some operators, surface parking in particular was creatively repurposed, at least temporarily, into car-free children’s play areas, farmer’s markets and socially-distanced outdoor dining areas which helped to prop-up local small businesses and the economy.
Not all companies were best placed to weather the storm and unfortunately those with a more precarious cash flow situation may not have been able to keep up with payments under the strain of dwindling revenues and have therefore already sought to offload their assets at an attractive price.
Will there be any long-lasting changes to the parking industry?
Right now, it doesn’t appear that there will be far-reaching ramifications for the industry. It’s true that businesses have acknowledged the greater efficiencies of the work-from-home policies, but it’s unlikely that this will continue on an indeterminate basis and although still a moot point, it appears that most employees would opt for a flexible working week with a combination of at-home and in-office work. Couple this with a cautiousness around using public transit systems and a welcome return to sports and entertainment venues and the demand for parking should reasonably return to even higher than normal levels after the downturn.
We remain in a period of uncertainty in our economy and whilst that has some very real challenges for owners and operators at this time, the pandemic could in fact act as a driver for technological advancements in the industry with the most advanced facilities providing consumers with safe surroundings, great customer service and at the same time maximizing profit margins.
Pre-pandemic parking lots were under-utilized at certain times of the day and week and the current situation has drawn attention to this so we’re certain to see more creative uses for facilities at off-peak times and advances in smart parking concepts and contactless technology to protect customers. We may also see the development of mixed-use garages and a slow transition to catering for electric and autonomous vehicles.
Parking lot technology is notoriously antiquated and owners that innovate for the future and maintain positive cash flow will retain prime real estate. Alongside the safety aspects of contactless technology for bookings and prepayments, automation technology allows easy management of space availability, bookings, real-time occupancy and priority allocation for those that need to be in closer proximity. The future is safely making the most efficient use of space.
What is an unknown for now is what the retail landscape will look like post-pandemic - will malls be a thing of our past now that we’ve become comfortable with online ordering and curbside pickup? Using ‘click and collect’ for groceries has been widely accepted as the new normal, even for older generations. What will happen with this surplus of asphalt retail space on the outskirts of towns and cities, remains to be seen.
Do parking lots still present a sound investment?
If they can be secured, parking lots are still an extremely attractive asset proposition. Obtaining the right site could prove challenging as they’re rarely brokered and garner a lot of competition when they are.
The previously mentioned disruptors of ride-sharing and consumer allegiances moving away from their own transportation, that may have posed a threat to the parking industry just a year ago, are no longer a threat. Consistent, long-term revenue growth is now attainable due to the stagnation of these threats and the relatively low recurring capital requirements such as management expenses and maintenance compared to other assets. In addition the shortage of available parking space due to redevelopment has kept values high.
Acquiring the right site is central to maximizing returns - this requires an extensive knowledge of the surrounding area and a well thought-out business strategy. Let’s not ignore the opportunities for redevelopment either. Once concealed garages, sitting underneath or beside office and residential towers are being adapted to house urban-fulfilment centers (dark stores), food delivery services, EV charging stations and even urban micro-farms. These structures may once have served only cars, however it takes just a little vision to re-imagine them as something entirely different and profitable.