Parking’s ticket to ride
Total Property - Issue 6 2019
Nestling between glass and steel office blocks or standing anonymously on the edge of town, car parks generally lack the instant commercial sparkle of other properties to tempt investors.
Yet, they are the epitome of a low-maintenance, passive investment and the ultimate supply and demand business. There are few fixtures and fittings and although the returns are not dramatic they represent an attractive alternative to residential property.
Parking offers a foothold in commercial property to those who cannot afford to buy a modest office, retail or industrial building. Looking at the few car parks that come up for sale, particularly in city centres, reveals how highly-prized they are for their reliable returns, rising value and relative lack of complications.
New ones are rare as most local authorities now discourage driving into town. Planners are also reducing parking space in new-build offices and apartment buildings, so it’s hard to see a sudden drop in demand.
Car park sizes are fairly uniform – typically around 15 square metres. As property, the asphalt, concrete or gravel park is the depreciating element while the land appreciates.
Their value has increased significantly over the past five years. Two years ago an Auckland CBD car park in the Quay Regency apartment building sold at auction for $265,000, when some apartments were selling for about that price.
The same year, Tournament Parking sold 250 parks on individual titles in a Newmarket building to Wilson Parking for about $65,000 a park. The car park was generating total annual income of more than $819,000 with a long-term lease running until October 2029. The sales yield was 5.0 percent.
Last year the 427-bay Federal Street Car Park in Auckland was sold vacant without any holding income by SkyCity Entertainment to Australian property group IDC for $40 million – equating to $24,375 per square metre of land. Apartment and hotel development land had been selling for $20,000-22,000 per square metre.
SkyCity has also agreed to sell a concession until 2048 over the 3,200-bay car park at its Auckland CBD casino site to Macquarie Principal Finance Group for $220 million.
A number of car parks in two tranches were sold at 17-19 Hobson Street in the CBD this year for a 4.5 percent yield.
And some of the more popular car parks, such as in the Farmers Building in Auckland's CBD, which can be bought on an individual basis, are selling for about $75,000. Five years ago they were selling for $45,000.
Individual owners often hold tranches at the rear of office or retail buildings in the city fringe or suburbs.
Bayleys sales director Alan Haydock, who has sold numerous car parks, says they will remain an ideal investment, depending on where they are, what part of town, and whether they are in a purpose-built property.
“Car parking is at a premium. Since 2007 about 800 CBD car parks have gone, dropping from about 4,200 to 3,400.”
As well, Auckland Council's Unitary Plan is aimed at reducing the development of off-street parking in new office and apartment buildings to encourage use of public transport, and minimum parking requirements for new development have been removed.
“This will only put pressure on the existing supply of car parks and, I believe, continue to push their value up,” says Haydock. “It makes car parks good for any buyers who are looking for cashflow from a hands-off investment.”
Auckland Council is looking at selling or leasing its four big inner-city car parks – Fanshawe Street, Victoria Street, Downtown and the Civic. They are part of council-controlled Auckland Transport's (AT) 3,000 bays in parking buildings and off-street parks, and 6,000 spaces if open-air, ground-level off-street parks are included.
AT owns and operates its car parks. On its off-street managed car parks it has a policy of reducing lease spaces and changing to short-term parking. This is managed by attrition rather than breaking contracts.
AT's parking services and compliance group manager, John Strawbridge, says that while AT runs parking as a commercial entity it doesn't make a decent return compared with private operators who can charge higher fees.
“We don't want to build more parking buildings, but want to squeeze more out of existing assets. We are looking at open-air car parks as a way to build up on an existing base and use car stacking machines, which are a more affordable option for extending parking spaces.”
Rob Harman, Smart Parking's Asia Pacific head of operations and chair of the New Zealand Parking Association, says while clearly there is money in parking, margins are slim for operators.
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