The Pandemic Drags On
January 2022 marks the two-year anniversary of COVID-19 in the US. Throughout this time, Parking Advisors has actively tracked business and consumer trends in major markets nationwide. We’ve worked on over 200 properties in the past two years, and have 65 properties in our asset management program, which gives us a unique insight into the marketplace.
Our team spent the last several months working with clients to prepare for January 1 return to the office. Those plans were delayed in many cases (actually, most cases). The good news, however, is that tenant surveys have shown, while moving forward plans have been dashed, most tenants are not moving backward and sending their teams home. And many of the employees are driving to the office, even if it’s on a staggered or part-time basis.
Why Does Parking Matter?
In addition to the income and asset value generated by parking facilities, extremely valuable data is generated through the parking garage. Accurately tracking and analyzing parking activity provides direct, real time insight into tenants’ employees and visitors. For example, many of our clients owning office buildings have tracked their tenants’ employee headcounts over the past two years by surveying office managers or taking turnstile counts. To supplement this, tracking garage activity with real-time, detailed data provides a valuable double check to these headcounts and further insights into employee behaviors.
Consistent with our projections early in the pandemic, markets having efficient public transportation options are seeing parker attendance increase at a faster rate than markets where tenants’ employees traditionally drive to work. For example, in New York and Chicago the garage occupancies steadily recovered in 2021, since many office workers utilized train or bus options prior to the pandemic and are now driving to work.
Parking counts also reflect the local markets’ responses, public health policies and general attitudes toward COVID-19. The financial districts in Boston and in most LA submarkets, for example, have been much more conservative in their return-to-work policies compared to CBD and Uptown Dallas, or most South Florida submarkets.
It’s a Tale of Two Pandemics
The recovery toward “normal” parking demand continues to be asset specific and varies greatly by market and submarket, in line with the policies of major office tenants and other demand drivers. Many of us have been pushed to the limit by the pandemic, and parking demand directly reflects consumer sentiments and the resulting behaviors. However, it’s clear that two different attitudes toward the pandemic exist in almost every market.
Weekday office parking demand remains soft in most markets, as remote working and staggered office schedules continue. In a prime example (no pun intended) Amazon has announced a series of deferrals in their return-to-work polices and the ripple effect across Seattle has been profound, with greatly reduced parking demand city wide. Reflecting this, an example Seattle garage in Parking Advisors’ asset management portfolio was 92% occupied in December, 2019 and 16% occupied in 2021.
In contrast, the conservative attitudes toward office attendance don’t necessarily carry over to after-hours activities, with parking facilities close to restaurants, bars and other entertainment venues beating their 2019 numbers in some markets. Two examples are River North in Chicago and Seaport in Boston. Weekday parking demand has lagged 2019 levels, while facilities in these submarkets close to restaurants and bars experienced strong evening and weekend traffic beginning mid-year 2021. Similarly, some garages in South Beach, Austin, Nashville and other tourist destinations are booming.
What Does the Future Hold for Parking?
Throughout the past two years, our clients have continually asked us about the future of parking demand and revenue. Some asset owners anticipate reduced demand going forward, while others are concerned that their office buildings will have parking shortages post-pandemic. The truth is, nobody knows. However, we can study recent trends to provide some hints about the future:
- Reduced office attendance levels and parking demand likely won’t last forever – The office culture exists for a reason; teams need to collaborate, learning needs to be shared and there is a basic need for interpersonal interaction. Some companies are considering staggered work schedules or remote working as long-term solutions; however, those companies will eventually reduce their office footprints. The space will naturally backfill with tenants occupying at “normal” densities. Keep in mind that, prior to the pandemic, office densities were increasing – in some markets, tenants commonly requested 4 spaces per one-thousand square feet or higher parking ratios.
- Parkers want options – Flexibility in office worker attendance (by hour of day or day of week) will be a trend for at least the next several years. The personal economics of the monthly parking pass will change, at least in the near term, for parkers who pay out-of-pocket but return to the office part-time. Many of our clients have requested flexible payment or access options for their tenants, and Parking Advisors is working with technology providers to identify the most viable options.
- The migration to online hourly parking is permanent – Historically, daily parkers pulled a transient ticket upon garage entry and paid their fee at the posted rates. In the past five years or so, several markets have become saturated with online parking sites that allow parkers to compare options and pre-purchase their parking. Online sales now comprise over 60% of daily revenue at many Chicago garages and the market share is growing in many other markets. This is great for the parker, but not so great for the facility owner, since aggregator fees can equal 20% to 30% of the net parking fee in many markets. To combat this, Parking Advisors developed an online platform with a low fixed transaction fee that provides a savings of 80% compared to third-party aggregators. Initially developed for our clients, this platform has grown fivefold during the pandemic. The platform provides a win-win, since parkers can save money while the asset owner nets more compared to other options.
- Monthly parking management is also moving online – Traditionally, monthly account signup was cumbersome. Parkers had to call email the garage manager, arrange a time to meet at the garage office, fill out a paper form and write a check. This is a big challenge currently, since neither the parkers nor the garage staffs are on regular schedules. To overcome this, Parking Advisors has developed a full online monthly parking solution, which we piloted in late 2020 and have rolled out to some portfolio clients in 2021. The pilot resulted in higher revenue and lower A/R compared to peer assets, since parkers can quickly sign up and manage their accounts online, with autopay by credit card or ACH. The platform is expanding rapidly, and our recently released company account option allows office admins to fully manage their employee parking groups.
Our Near-Term Recommendation: Focus on the Fundamentals
Parking demand will likely recover at varying rates, depending upon the asset, demand drivers and submarket conditions. However, there are steps you can take to maximize cashflow now. Here are some key recommendations:
- Manage your operations team closely – Like most businesses, parking operators have struggled over the past two years. Cash flow has been tight and profitability has dropped for many of these companies, and most have experienced the same workforce attrition as other industries. In many cases, senior managers are stretched across more locations, internal audits and controls have been cut and training programs have been cut altogether. The result? Some operators have lost their focus on the basic operating components that drive profitability for their clients. Where Parking Advisors has worked with closely with clients and their assets, the bottom line has improved. In every case, we start with the basics, including:
- Unredeemed tickets – As parking volumes have recovered, we regularly see unredeemed ticket counts as high as 25%. That means that one out of every four daily parkers entering a facility doesn’t pay. This metric used to be considered Parking 101; however, in too many cases, the garage managers have no idea why their ticket loss is high. Identifying and closing loopholes can increase net cash flow by 20% or more.
- Access card audits – Every garage manager should reconcile the active, paid accounts to active access devices each month. Upon initial review, we regularly see garages with dozens – if not hundreds – of unbilled access cards. That means some parkers are in the garage, occupying space, without paying. Again, this is Parking 101.
- Accounts receivable – Every monthly parker should pay by the fifth of each month. Once a month or more has passed, it’s increasingly difficult to collect the revenue. Most properties in Parking Advisors’ asset management program outperformed the market in 2020 and into 2021; close management of A/R was a primary driver of this success.
- Fees and pass throughs – Parking Advisors scrutinizes every financial statement every month; we regularly see new or increased fees and pass throughs by operators, with no clear explanation. Often these are mistakes, since operators’ accounting teams are also stretched thin – however, the mistakes are almost never in your favor. In many cases the operators push through fees without prior client approval.
- Suspend, don’t cancel your parkers – Some garage managers are still receiving calls from parkers asking to cancel their monthly parking accounts. Wherever possible, we direct the managers suspend the account. The psychology is simple; a suspended parker is much more likely to return than a cancelled parker.
- Watch your online rates – At properties with significant online revenue, it’s important to watch the online rates at nearby, competing facilities. Some owners adjust their rates regularly, and many parkers shop online rates regularly. While we don’t advocate dropping rates in a recovering market, in some cases additional revenue can be generated through off-hours promotional pricing.
- Call us – Parking Advisors is here to help. Over the past 15 years, we’ve built a business by creating value for our clients. We’re happy to answer your questions any time. Our online platform has over 2,000 locations with 15 separate websites; we can easily add your facility. As experienced real estate professionals, our singular focus is creating value for our clients and their assets.
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 $25.0 billion in commercial parking assets across all major US office markets. We currently provide active oversight for over $2.5 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.