Commercial Parking in the COVID-19 Era: August 2020 Update

August 17, 2020

Executive Summary

The COVID-19 environment and its impact on the commercial real estate industry in general – and commercial parking in particular – is unprecedented and profound. Both the severity of the impact and the immediate nature of the decline in parker volumes have been unlike anything in our lifetimes. During this period, Parking Advisors, Inc. has closely monitored parking demand, revenue and operations at commercial parking facilities in large MSAs throughout the U.S. and Canada.

Parking Advisors generated a white paper in May, 2020 that summarized the firm’s observations and experiences, and outlined expectations and recommendations as cities and parking facilities returned to “normal”. This paper provides an update to that report, based upon observations and data from the five months beginning in mid-March, 2020.

Parking Advisors’ client list numbers well over 100 of the largest institutional asset owners and managers in the U.S. The firm currently oversees 55+ parking assets as a part of a national Parking Asset Management program; this portfolio includes some of the largest parking facilities in the nation’s top tier markets. The impact of COVID-19 has varied greatly by market and by asset. This paper considers data from a subset of 24 assets located in four representative U.S. parking markets where Parking Advisors’ clients have a concentration of owned assets: Chicago, Denver, Seattle and Washington, D.C. While this data is only a subset of our portfolio, it is both representative and indicative of trends that our firm has observed across our portfolio of projects and assets under management.

Submarket Demand Trends

Parking Advisors reviewed key revenue, net income and occupancy metrics for sample parking facilities, comparing Q2 2020 to prior year (Q2 2019) and prior quarter (Q1 2020). On a high level, data points include the following:

  • Daily / Hourly Revenue – Q2 2020 daily revenue declined by an average of (80.9%) year-over-year, and by (75.0%) from Q1 2020 to Q2 2020. The revenue declined less at Chicago facilities compared to other markets, owing largely to recovery in volume that began in June.
  • Monthly Revenue – Q2 2020 revenue declined by approximately (26.3%), both year-over-year and when compared to Q1 2020. At most properties, potentially significant declines were mitigated by tenant must-take clauses, focused collection efforts and other factors that are discussed in the following section of this paper.
  • Other Revenue – This category comprises online sales, validation sales, hotel, valet and other revenue sources. In total, Q2 2020 revenue declined by (66.9%) year-over-year and by (58.5%) compared Q1 2020. Markets with a strong online sales presence saw that online sales revenue declined less than drive-up transient revenue, as parkers sought out lowest cost options and “contactless” facility entry and exiting.
  • Net Income – The decline in net income was 1.9% greater than the decline in revenue when compared year-over-year and 0.6% less when comparing Q2 2020 to Q1 2020.
  • Garage Occupancy – The decline in physical garage occupancy varied by asset and market, however it is notable that garage occupancy in Q1 2020 was lower compared to Q2 2019 at Chicago, Denver and Washington, D.C. properties. There is some seasonality to garage occupancy at some garages, however this may be indicative that a slowdown at these properties was beginning to occur pre-COVID.

Following is the summary of the sample property data:

Q2-2019 v Q2-2020 VarianceAverage Mid-Week Occupancy
Daily
Revenue
Monthly
Revenue
Other
Revenue*
Total
Revenue
Net
Income
2019-Q22020-Q2Variance
Chicago-67.6%-32.9%-61.1%-56.7%-69.9%96%44%-52%
Denver-87.2%-29.2%-71.5%-43.9%-44.4%92%20%-72%
Seattle-86.9%-12.2%-76.0%-55.1%-51.5%71%26%-45%
Washington, DC-84.8%-31.6%-72.5%-55.1%-59.5%87%26%-62%
Total-81.0%-25.8%-66.9%-53.3%-55.2%87%29%-58%
Q2-2019 v Q2-2020 VarianceAverage Mid-Week Occupancy
Daily
Revenue
Monthly
Revenue
Other
Revenue*
Total
Revenue
Net
Income
2019-Q22020-Q2Variance
Chicago-57.9%-31.6%-58.2%-50.0%-61.1%91%44%-47%
Denver-83.9%-28.7%-53.9%-39.8%-38.6%82%20%-62%
Seattle-81.5%-14.2%-57.8%-46.5%-37.5%78%30%-47%
Washington, DC-81.6%-33.2%-61.5%-52.0%-54.8%81%26%-56%
Total-75.0%-26.3%-58.5%-47.2%-46.6%83%30%-53%

Office Parking Demand

Parking facility occupancy and revenue has varied greatly from market to market and asset to asset, depending upon multiple factors. Following are key observations and trends:

Daily / Hourly Parking Demand and Revenue: the impact of the COVID-19 downturn had a direct impact upon parking demand and revenue, since the impacts of shelter-in-place orders, reduced business activities, loss of tourist traffic and other events were felt immediately. There are, however some exceptions and anomalies.

  • In some markets, construction projects were allowed to continue during this period. Projects near large construction projects benefitted from contractor demand.
  • Facilities having a strong medical component and / or essential worker population in their tenant base tended to experience less of a downturn in demand.
  • As workers return to work in some markets, the hourly parking demand is recovering at a faster pace than monthly parking, since many companies have staggered work schedules and/or flexible schedules. Many Chicago parking facilities, for example, have demonstrated this trend.

Monthly Parking Revenue: the impact of COVID-19 upon revenue has varied greatly by asset, depending upon tenant profile and negotiated lease terms.

  • Properties having a significant number of “must take” clauses in tenant leases fared better than other properties, provided the property owners enforced these clauses. This was the case at most properties that Parking Advisors oversees.
  • Properties with lower parking ratios and/or higher profile tenant bases have tended to experience less parker attrition, since many tenants wanted to make sure they still have access to parking when they return to work. For example, the Seattle properties that Parking Advisors oversees performed well due to a combination of must-take clauses and Amazon’s decision to continue to pay for monthly parking in order to “hold” the spaces at some properties in anticipation of the return to work. However, as the pandemic has dragged on, companies are canceling or suspending their monthly parking accounts at higher rates in multiple markets; this trend is strong in Denver and Dallas, for example.
  • Diligence and persistence have paid off; properties where parking operators focus on current month collections and enforce the 30-day cancellation clauses and other terms of monthly parker contracts revenue have performed significantly better.

Net Parking Income: the relationship between revenue and net income varied from property to property.

  • Most of Parking Advisors’ clients decided to keep garage employees on the payroll, negatively impacting net parking income. In many cases, garage staffing levels were reduced over time due to attrition, resulting in a reduction in operating costs as the pandemic continued.
  • Many clients also decided to perform deep cleaning or painting projects during the pandemic. These owners desired for the parkers’ return to the workplace to be positive and to communicate the new precautions that were being taken at the asset. Most clients expensed these one-time, special projects.

Residential Parking Demand

Resident monthly parking demand has generally held up. In markets where on-street parking enforcement was paused, or lessened, some residents opted to move their car to the street; however, this was not too impactful at most facilities. Many residential properties have historically backfilled spaces during weekdays with public parkers. Facilities in urban locations have commonly discontinued this practice due to COVID-19 concerns, eliminating a revenue source that was highly profitable in some cases. Those facilities that remained open have experienced significant drops in daytime parking demand in most submarkets.

Hospitality and Event Parking Demand

The sector has been decimated by COVID-19. Restaurant, hotel, special event and related revenue was greatly reduced or has disappeared entirely as a result of the pandemic. As restaurants and hotels began to reopen – or partially reopen – parking demand and revenue has started to recover. This trend has reversed in recent weeks as restrictions were reinstated in some markets. Self-park demand is increasing at a faster pace than valet demand, since many patrons are avoiding handing their keys to valet attendants while also utilizing public transportation and Uber/Lyft less often, if at all. Valet parking services have been discontinued nationwide; it is unclear if they will return soon – or in some cases ever.

Likely Trends as Markets Recover

Parking Advisors is closely watching and measuring parker behaviors, the business environment and revenue trends to the extent possible. While we have no crystal ball, we have some thoughts on near-term parking trends.

Parking Demand Trends: In markets where public transportation has historically been heavily utilized, we expect to see more workers driving and parking for the foreseeable future as they avoid heavily populated train cars and buses. However, in most markets we expect parking demand to be generally flat through year end 2020, with a gradual recovery beginning at some point in 2021. It is unlikely that the conversion from public transit to single-occupancy vehicular commuting will offset reductions in workplace attendance until well into 2021; there are many predictions that work-from-home and other dedensification programs will continue for an extended period of time. We expect to see higher drive-up rates at hotels when that market recovers; again, the timing of this recovery is unclear. The future of valet parking remains unclear, and the impact may be permanent.

Contactless Parking: Many of our clients are highly focused on reducing friction or touch points throughout their properties, including within their parking facilities. Completely eliminating friction points for daily parkers requires technology upgrades, including hardware upgrades or replacements in many facilities. The add-on “hand wave” devices that are touted by traditional parking technology providers have generally been problematic to date. Parking Advisors is highly focused on viable, long-term hardware- and software-based solutions. However, we have developed an immediately available, low-cost online platform for monthly parker signup and visitor parking pre-purchase. Among other benefits, the platform allows parkers to sign up for monthly parking without having to fill out a form in the parking office. This platform has been widely embraced by clients and has experienced four-fold adoption in 2020, with rapid expansion into multiple new geographic markets.

Customer Facing Parking Programs: Several of Parking Advisors’ clients have offered deeply reduced rate daily parking during the early months of the pandemic as a good will gesture. While this has had a minimal impact on parking revenue, it sends a very strong positive message to tenants. As markets recover, we are seeing large employers seeking to secure parking for their employees and offer reduced rate daily parking to support their split work schedules and workplace social distancing programs. As an example, Parking Advisors recently developed a promo code-based daily parking program for a national health insurance provider. This program provides a daily parking discount at select facilities in multiple MSAs, utilizing Parking Advisors’ online platform.

Monthly Parker Contracts: As parkers suspended or cancelled their parking due to the pandemic, Parking Advisors found that many parking facilities had inadequate, and inconsistent, contracts in place with customers – if there were contracts in place at all. Monthly parking revenue comprises a significant revenue source and component of asset value at many properties. The inadequate documentation of this revenue source is concerning and underscores shortcomings in the current industry standard parking operations business model. Parking Advisors strongly recommend that institutionally owned parking facilities have their parking operator execute a contract with every parking customer with clearly outlined terms and conditions, including a 30-day cancellation clause. We have developed a recommended form and are in the process of rolling this out with clients nationally.

The Commercial Parking Operator Environment

With some very welcomed exceptions, the COVID-19 environment and resulting economic disruptions continues to expose concerns with parking operators of all sizes, including local, regional and national operators. Following are several observations:

Service Levels: In general, the service levels from operators have dropped in recent years, despite strong parking demand and market expansion in many MSAs. The financial impact of the COVID-19 downturn has stressed these companies further. Layoffs, furloughs and / or compensation reductions have been implemented by every operator that Parking Advisors has been in contact with. Responsiveness has been a challenge in some cases, and financial statements have been late or have contained inaccuracies. Proactive marketing or customer outreach have become a rarity.

Financial Viability: The long-term viability of some operators remains a question. One regional operator located on the east coast filed for Chapter 11 protection in May. Rumors of additional filings are now circulating within the industry. Operators continue to exit MSAs and cancel operating agreements, in some cases with little or no notice and walking away from hard-earned client relationships. Rumor mill aside, Parking Advisors would not be surprised to see more operating companies fail both financially and operationally given the number and suddenness of some of these moves.

Long-Term Outlook: If there are losers in the operator industry, then there must be winners, correct? Not necessarily. At first pass, it would appear that, as large operators exit facilities and markets, many small and medium-sized operators have gained market share. However, these companies commonly lack efficient and scalable platforms, many have thin or underexperienced management teams, and smaller companies often lack market relationships and knowledge. Parking management contracts tend to have thin profit margins, and incentive fees are likely to be low for the next several years due to the soft revenue environment. As a result of these factors, the success of an incoming operator is far from guaranteed. In response to our clients’ expectations, Parking Advisors is focused on continuing to develop efficient and scalable revenue management, reporting and analytical tools, and we are making significant headway. The industry has historically taken only modest steps toward standardization and adoption of efficient technologies; perhaps the realities of the post-COVID world will accelerate this evolution.


About Parking Advisors, Inc.

Since its founding in 2007, Parking Advisors has provided value-add parking advisory, asset management and investment services to many of the industry’s largest and most respected commercial property owners. The firm has been directly involved with over $18.0 billion in commercial parking assets across all major US office markets. We currently provide active oversight for over $1.5 billion in parking assets on behalf of clients on an ongoing basis. Our projects have included many of the largest and most profitable commercial parking operations in the U.S.

Mark Fancher, Principal

Mark will be primarily responsible for the proposed project, and will be assisted by Parking Advisors team members. A 30+ year industry professional, Mark has over 18 years of experience driving parking asset performance and developing large scale parking operating and asset management platforms. Prior to forming Parking Advisors, Inc., Mark served a number of functions, including Vice President – National Property Operations and Vice President – Asset Management for Equity Office Properties Trust. In these roles, Mark originated, developed and executed multiple operating initiatives that drove company profitability while changing industry convention. Among his accomplishments, Mark developed Equity Office’s National Parking Program, which created $530 million in value across the nation’s largest single-owner commercial parking portfolio. Mark earned a Bachelor of Environmental Design degree from the School of Architecture at Miami University (Ohio).

Kevin Dahm, Principal

Kevin joined Parking Advisors in 2009. He developed and oversees Parking Advisors’ technology, financial performance and modeling tools, and business processes. Prior to joining the firm, Kevin worked in LaSalle Investment Management’s acquisitions group, where he evaluated over $10 billion and closed $500 million of commercial real estate transactions in first tier U.S. office markets. Prior to joining LaSalle he held multiple roles in Merrill Lynch’s real estate structured finance group. Kevin earned a Master’s degree with Distinction from the J.L. Kellogg School of Management at Northwestern University and a Bachelor’s Degree in Finance and Real Estate from the University of Wisconsin.

Erik Eloe, Vice President

Erik joined Parking Advisors in 2018. As a senior member of the management team, Erik oversees Parking Advisors’ Asset Management program, technology and parking operator RFP processes, and the firm’s value-add assessment projects. Erik brings over 13 years of parking operations experience to Parking Advisors. Prior to joining the firm, Erik served as Senior Branch Manager for a national building services firm, where he was responsible for 4,500 employees and revenues in excess of $250 million. Erik earned a Bachelor’s Degree in Business Administration from Maranatha Baptist School of Business in Waterton, Wisconsin.