The Pandemic Transforms the Parking Lot

A parking area at Ontario International Airport near Los Angeles is now a pop-up drive-in movie theater. The Del Mar Fairgrounds near San Diego, normally host to the San Diego County Fair, is renting parking lots to hold rental cars idled by lost visitor traffic. And in Toronto, office workers now at home are giving up monthly parking where there are normally long waiting lists for spots.

Signs of the pandemic can be found across North America's emptied parking lots as thousands of acres of normally revenue-generating property change along with work, travel and entertainment patterns.

Among businesses that have been hard hit as people stay at home are operators of urban commercial parking lots and garages, where revenue has plummeted from cancellations of ball games and concerts and the shutting of office buildings and retail centers. And the industry is already thinking about how it needs to change once things reopen, from the use of more flexible parking passes to the installation of touchless technology.

Gordon Woodley, chief operating officer of Dream Office REIT, which has about 5.5 million square feet of office space heavily concentrated in Toronto, said parking is another revenue stream partially lost to landlords being hit by the pandemic.

"It's not something that's been talked about much," said Woodley, adding some tenants are abandoning monthly parking spaces out of necessity, even though in the city's tight market there are waiting lists for some reserved spots. His guess is parking is down by about 50% in Dream Office’s portfolio.

Parking operators often depend on drivers seeking scarce space in city downtowns and other high-demand areas, especially during workdays. Companies such as Allpro Parking, ABM Industries, Ace Parking and LAZ Parking were all forced to lay off or furlough hundreds of workers amid plunging business, though some of those workers have been brought back as businesses have partially reopened in many cities.

Income has come to a near standstill for many firms. For example, SP Plus, which operates parking lots and related transportation facilities near airports in 18 U.S. cities, reported a $46 million net loss for its first quarter which ended March 31, compared with a $10 million profit in the year-ago period, citing coronavirus as the primary culprit.

“We expect the COVID-19 pandemic will present a substantial challenge for most businesses, including ours, for the remainder of the year and potentially longer," said CEO Marc Baumann, describing the situation as unprecedented for the 90-year-old Chicago company.

Many lot operators unable to garner their usual revenue are instead using their properties to generate support for their local communities and businesses during the pandemic, usually with little or no financial return. A parking lot at Major League Baseball's Dodger Stadium is now the L.A. region's largest coronavirus testing site, with about 6,000 people being tested daily in their cars. These parking spaces would be going for $17 to $40 each if the MLB season was not on hold, according to the league's website, but the team is donating the virus testing space to the city.

The Ontario airport, located in the San Bernardino County city of Ontario, is granting free admission to movie-goers who are expected to fill up to 300 parking spaces in each of four upcoming showings, with a four-week lineup starting with the Academy Award-winning 2019 auto-buff film "Ford v Ferrari." In normal times, those spaces might bring in up to $21 daily apiece or about $25,000 total.

Airport spokesman Steve Lambert said reservations for the first night's free parking lot event on June 19, with a maximum capacity of 300 cars, filled within two hours after the announcement of the four-week series using two 50-foot-high screens. The gatherings also let visitors donate to regional food banks and purchase food from local restaurants and food trucks hit hard by lost business during the pandemic.

"The idea was to provide an accessible entertainment opportunity for local residents during COVID, and to give back to a community that has supported the airport all these years," Lambert said. "There isn’t a revenue-generating component to it; again, it’s really about community building."

Cities have taken a similar approach in some instances. San Diego, Los Angeles and other municipalities have recently closed off some neighborhood streets and parking lots to allow recovering restaurants to expand their outdoor dining capacities, in a bid to spark revenue that isn't being generated by reduced foot traffic in many areas.

It's not clear whether demand will pick up as people return to the office. But there are some signs commuters could be looking for an alternative to transit. A study from real estate firm JLL released this month found 34% of respondents who previously took public transportation plan to seek alternate means after the pandemic. The survey of the top 25 metropolitan areas in North America for total workforce using public transit found anxiety among users. Toronto had the second-highest number of people in the workforce using transit after New York City.

And Woodley says he is confident of the long-term value of parking spaces.

"I think parking will be a valuable commodity for people in the core," he said. "I think people will covet it, and companies will see it as a perk to attract talent."

Tough on Operators

Commercial parking lot and garage operators were already dealing with flattening sales growth before the pandemic, thanks largely to competition from ride-hailing services such as Lyft and Uber, and the financial disruption from coronavirus could be long lasting.

Research firm IBISWorld reported that the $10.6 billion U.S. parking lot industry registered a slim annual revenue growth rate of 0.7% over the past five years, and the coronavirus could force a downward revision of the similarly low 0.8% growth rate that it had previously projected for the next five years.

“It’s a stretch to say parking lots were struggling before the pandemic, since the industry was growing in the years leading up to 2020 due in part to strong construction activity," said senior analyst Nicholas Masters of IBISWorld. "However, yes, current reduced economic activity is adversely affecting the industry."

Ross Frangos, a Toronto parking consultant who works on operational efficiency and counts consulting giant Deloitte among his customers, thinks it could be months for parking demand to come back.

"One of the biggest concerns of property owners when it comes to parking, as they review their financials, is investigations about expenses," said Frangos, who said many of his clients are real estate investment trusts. "Parking is a forgotten service and sometimes just left to a property administrator. With revenue dropping off so dramatically, they are taking a good look at financials. One of my clients was paying $30,000 per year for snow removal. And why pay that for an underground garage?"

Frangos said today someone could have a "hockey game" in some of the downtown Toronto parking garages, and property owners, many of whom sell rights to their lots to operators, are looking to just break even in the short term.

Now, these parking lots are going to need to be converted to payment options such as touchless ticketing machines or maybe cloud-based services, but Frangos said questions remain about lot maintenance because of major layoffs in the sector.

"If you don't have the staff, you can't look after the lot," said Frangos.

With no demand, it’s been anticipated rates would drop, but Frangos has told clients that would be "suicide" because there is no incentive to get people into downtown cores across Canada so volumes won't pick up to compensate for lower prices.

He estimated monthly passes are down about 60% to 70% in most major Canadian cities and maybe daily rate parking as much 90%.

"For the short term, what you said right now, at least for the next six months, is what you will see," he said. "You can open the economy tomorrow, and you won't get back to the standard norm."

Redevelopment Potential

Masters said the current climate could cause some parking lots to close temporarily, but he doubts that a large number can be converted in a sustainable way to other permanent uses, which would require significant investment to redevelop land or garages.

"Since economic uncertainty is high right now, the probability of a developer repurposing parking lots and/or garages is low in the current environment," Masters said.

Also, since parking lots and garages are most prevalent in suburban areas and cities with sprawl such as Los Angeles and Atlanta, they are more likely to be reopened soon as parking, since these areas are already in the process of reopening businesses.

The potential economic stakes are high, since the industry includes more than 19,000 large and small businesses that collectively employ more than 160,000 in the United States. Many small and midsize operators are expected to apply and qualify for government assistance geared to the pandemic.

"The parking lots and garages industry is expected to contract slightly due to a stark drop in retail traffic and the cancellation of sporting events and other major gatherings," IBISWorld analysts said in a recent report. "The effect on the industry is mitigated by continued demand for parking facilities in and around medical facilities."

Prior to the pandemic, parking industry growth prospects were already projected to level off in large part because of a slowdown in the growth of mixed-use developments that proliferated in many major cities during the past half-decade, including several projects geared to redevelopment around sports stadiums.

Increased urbanization has been a major generator for parking industry services, raising demand for large-scale parking garages and related management services in cities such as Austin, Texas, and Atlanta. But with commercial construction already anticipated to slow down nationwide prior to this year's pandemic, IBISWorld expects corresponding flattening in revenue from new management contracts between parking firms and developers over the next five years.

Parking lots in prime locations could still become targets for redevelopment.

Gary London, senior principal in real estate consulting firm London Moeder Advisors, noted that San Diego and other major cities have seen residential and mixed-use projects rise up in recent years where parking lots or auto dealerships previously existed.

The ascendance of Uber has spurred developers to de-emphasize parking in some urban projects, and the trend could be accelerated now that many have learned during the pandemic that they can work remotely and effectively with technology that has become increasingly refined.

"The evolution has now changed into a revolution, and many companies' employees see they can work flexible hours from home," London said. "The demand for overall parking, which was already in retreat, is going to be in further retreat and parking lot sites are going to give way to real estate development."

Changing Technology

Michael Back, founder and chief executive of HonkMobile, which has an app that allows users to access 2,000 parking locations across North America, said parking may be off 70% after being down as much as 90%, but he thinks it will return strongly.

"Pre-COVID-19, developers were building too many spots, and they were expensive to build. There was an idea that we were in a shared economy. We would all Uber, we wouldn't need the spots," said Back. "That future is still there, but maybe it's not coming as quickly as before. And now it's been pushed back even more by COVID. The private automobile will be everything."

Back said technology around parking is going to be able to adapt to the changing workforce quickly.

"It's going to be contactless. Even before, in fancy garages, you had to pull a ticket and then go to pay station and wait in line," he said, adding apps can do everything a parking meter can do other than taking coins. Monthly passes are easily doable.

But Back said flexibility is probably what consumers and companies will want as they go back to the offices, potentially in shifts.

"We are designing a product called Honk Pass, and it kind of works like a cross between monthly and daily parking. It's like a gym where you get a certain number of passes per month," said Back.

Flexibility will be crucial, agreed Dream Office’s Woodley, who said his company is now looking to implement a system with its card readers that will allow users to share passes.

Companies with allotments of spots could share those, instead of a pass being dedicated to one person. "They might be able to give us a real-time list of who is using their allotment so that they can rotate people in and out of there," said Woodley.

For now, even those flexible solutions are not in high demand, with so many still working from home.

"I just don't think people are looking that far ahead yet," said Back.