A never-ending global pandemic threatening to make central business districts redundant, combined with the onset of electric vehicles and autonomous cars spells doom for the future of carparks in major cities around the world. Or do they?
Depending on who you talk to, carparks are either a strong investment for the next 10 years or an asset that needs an exit strategy—and sooner rather than later.
“Carparks can have excellent investment characteristics,” M3 Property managing director Michael Coverdale said.
“Typically, they require low levels of repairs and maintenance, provide stable revenue streams, involve nominal incentives and generally minimal income disruption at lease expiry.
“Overall cashflow volatility for well-managed facilities is generally considered to be low—in the absence of severe state-wide locks and domestic and international travel restrictions.”
Coverdale says that while carparks generate stable returns, the investment market has been on the cautious side as Covid-19 continues to create headwinds.
“At the moment, just like most property sectors, investment yields have lowered considerably over recent years on the back of sustained low interest rates and the forecasted bond rate,” Coverdale said.
“Nationally and prior to the pandemic, yields typically would vary from circa 4.25 per cent to 6.5 per cent for quality facilities. Variance is dependent upon occupancy performance, lease tenure and other factors.
“Total returns, such as internal rates of returns, have been running at a minimum of 100 basis points higher.
“You would expect that under current market conditions emanating from Covid-19, however, once markets open back up, occupancy rates should rebound quite quickly but will vary from facility to facility and will be based on surrounding competition and the habits of core occupiers of each facility.”
Wilson Car Parks is the major player in Australia, owning key CBD locations in Sydney and Melbourne. They see no end in sight to their business.
“We believe that the future of carparks will see them shaped by emerging technologies—and we have invested heavily in parking technologies that keep people safer and make it more convenient to get to their designation,” Wilson Parking’s chief technology officer Paul Sidwell said.
“At Wilson, we already have one of the top-rated parking apps available to allow for easier trip planning and bay booking, as well as contactless payment, which are essential when travelling during this pandemic.
“Covid has added a layer of precaution when it comes to travelling and commuting, but we’ve noticed many customers are choosing to drive when they need to go to the CBD.”
First Parking is a relatively new player in the Australian carpark market who has revamped the traditional business model into a simpler, dynamic and practical structure that benefits all users.
“We have revitalised the model of carparking, which had been in place since the 1980s, as it made no sense to us,” First Parking managing director Daniel Hitchcock said.
“We thought that flat rates offer a more sustainable business model as it stops commuters watching the clock and racing back to their cars in order to avoid paying for another hour of parking.
“Our model is $29 flat rate in the CBD and $19 on the fringe. We also revamped the technology so once you register online it recognises your number plate and charges your credit card automatically. This saves the continual hassle of obtaining tickets and machines breaking down causing delays with entering and exiting.”
First Parking lease carparks from companies such as JP Morgan, Dexus and the Meriton Hotel among others and already have a presence in Sydney, Brisbane, Parramatta and Newcastle with Melbourne coming soon.
But they are preparing for the full impact of electric vehicles.
“The effect of both electric and driverless vehicles is only in its infancy in Australia,” Hitchcock said. “Unless the Commonwealth government subsidises electric vehicles the uptake in Australia will probably be lower than in the rest of the world.
“That being said, carparks will need to adapt to implementing models that they require along with storage facilities for these types of car models, because you can’t have 1000 driverless vehicles driving around the CBD in peak times.
“I still believe that individuals aged 30 years and up will want to drive their own vehicles.”
Not everyone believes that the future is bright and commuters will continue to drive their cars into the CBD once more freedoms return.
“Clearly the CBD car parking industry has been placed under enormous stress by the challenges of Covid, particularly during times of lockdowns when CBD’s become virtual ghost towns,” Savills state director Clinton Baxter said.
“The future of commercial car parking facilities within CBDs is relatively precarious, with the transition to ride-sharing and driverless cars inevitable over the next one to two decades. While in its infancy at the moment, once it happens the change will be very rapid.
“We expect traditional carparking facilities to become mostly redundant in time. The owners of commercial carparks, whether within existing office, retail and residential buildings, or standalone facilities need to begin contemplating repurposing options.”
Australian car sales have rocketed throughout the pandemic with individuals using the disposable income they are saving on holidays, especially on overseas trips, to upgrade to new models.
“New car sales in Australia have averaged 95,000 per month in the first six months of 2021, compared to around 87,000 per month during the same period in 2019,” CBRE pacific head of research Sameer Chopra said.
New vehicle sales in Australia grew 16.1 per cent in July 2021 over the same month last year, to 84,161 units. It’s the highest July tally since 2018. As such the year-to-date sales total now sits 26.5 per cent higher than the same point in 2020, at 651,629 units— also the best year-to-date tally since 2018.
“The near-term outlook for carparks is nuanced,” Chopra said.
“On the one hand, the need to work from home has impacted traffic and demand. But evidence on re-opening stories, particularly from China, showed a greater propensity to use private cars rather than public transport and taxis, with traffic up 11 per cent to23 per cent across Guangzhou, Shanghai and Beijing in May 2020 compared to December 2019.
“So, while the current return to work posture may have caused carpark demand to fluctuate over the past 18 months, there may be a contrarian buy-signal if private car usage increases post-pandemic.”
“New car parks may see more hybrid spaces and more features that support electric and autonomous vehicles, as well as alternative mobility options such as bikes, scooters and ride-shares,” Wilson’s Paul Sidwell, said.
“We believe car parks will become ‘pick-up anddrop-off service’ hubs for fleets of autonomous, shared vehicles, as well as hubs for mobility, freight, logistics and business services.
“Like any business, the parking industry is responsive to consumer demand and changes to demand will only be truly revealed when we’ve emerged from Covid-imposed lockdowns.”
Toby Lewis, founder and managing director of Marquette Properties, believes carparks are still a solid investment.
“I would gladly be investing in car parks, as owning a car is very personal,” Lewis said.
“Even though electric vehicles and automated vehicles will become prominent in Australia in the future, I will always want to drive. And when automated cars come into play they will need somewhere to stop, park and recharge otherwise the city would become inundated with vehicles.
“I also think there is scope for redevelopment of carparks. There could be many options to adding residential or retail to buildings, depending on their design.”