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'It Destroys The Revenue Model': The Rise Of Remote Work Has Crushed Parking Operators

The empty swaths of parking decks and garages during the coronavirus pandemic in commercial properties are more than just evidence that working from home has killed traffic into office buildings, hotels and retail properties.

Those empty garages have huge financial implications on the commercial parking industry. Their operators are facing a financial crisis, laying off thousands of workers, and building owners stuck with unused garages are losing millions and wondering if they should repurpose the space.

An empty parking deck is a sign of the times during the pandemic.

“I would think [the impact on revenues] is almost as much as the airports and hotels,” International Parking & Mobility Institute Vice President Rachel Yoka said. "No one is traveling. No one is really commuting."

Commercial parking companies have seen revenues drop 70% to 90% since the start of the pandemic, according to IPMI, one of the world's largest professional organizations for transportation and parking professionals.

The country’s largest publicly traded commercial parking company, SP+ Corp., reported a $173.3M loss during the first nine months of 2020 after posting a $40M profit during the same period in 2019, with executives blaming the loss on the pandemic.

San Diego-based Ace Parking, which has been operating for 70 years, was forced to lay off or furlough 4,000 of its 5,000 employees during the pandemic, owner Keith Jones told Bisnow. Last year, gross revenues for Ace totaled more than $1B, he said. This year, it has brought in roughly $100M.

“I'd say overall, get ready for this, there's been a 90% volume reduction in parking,” Jones said.

Office owners said while most companies have kept workers remote during the pandemic, they have largely maintained their leases and made rent payments. But whether parking lot operators manage a garage for an office owner or lease it, none of them are bringing in close to the revenue they need to operate long-term.

“The current situation is more dire for parking operators than it is for office operators, and nobody basically is commuting,” Washington, D.C.-based commercial developer Chip Akridge said during a Bisnow webinar last week. “We have a number of parking operators that have gone bankrupt. We have a number that are reworking their lease agreements to management agreements to be able to pay a percentage of what they collect.”

Akridge Chairman Chip Akridge

For decades, the revenues parking decks and lots brought in were a commodity, predictable and safe, Yoka said. As a result, commercial parking companies and some REITs built a business around that predictability. But the pandemic has snuffed it out as drivers have stayed put.

In early 2020, driving was on the rise. In January, drivers traveled more than 253.6 billion miles on all American roadways and highways, a 2.1% increase from the same month in 2019, according to the Federal Highway Administration. In April, drivers only drove 169.5 billion miles, a nearly 40% drop from 2019.

Commuters gradually returned to the roadways over the summer, but not to pre-COVID levels. As of September, the latest data FHA has, commuters traveled 248.2 billion miles, an 8.6% decline from 2019.

Fewer drivers are expected on the road this holiday season than in years past, according to the American Automobile Association. Vehicular travel is projected to fall 25% in the U.S. this holiday season, the first time year-end travel has fallen since 2008, according to AAA.

Fewer cars on the road means fewer cars in garages, and for office owners that have come to expect reliable parking revenue, this year has seen a steep decline.

Between July and September 2019, office REIT Equity Commonwealth brought in $1.5M in parking revenue and other fees. During the same period this year, it brought in $736K, a 53.2% decrease, according to its third-quarter filing with the Securities and Exchange Commission.

New York-focused office REIT Paramount Group brought in roughly $3.8M less in parking and other fees through the first nine months of 2020 than it did in 2019, according to an SEC filing.

The Parking REIT, which owns 38 parking decks across the U.S., lost $9M in the third quarter. Parking REIT outsources the management of its parking decks to third-party providers, the biggest one of which is SP+, which contributes to 61% of the REIT’s income, according to SEC filings.

Boston Properties, which owns office towers in New York City, San Francisco, Los Angeles, Boston and Washington, D.C., saw parking and other revenues decrease by $13.4M year-over-year in the second quarter. While parking revenues ticked up by 15% in Q3, Chief Financial Officer Mike LaBelle said in the company’s earnings call, it grew from “a small base.”

“Monthly parking passes have not yet begun to rebound and transient parking continues to be pretty light,” Boston Properties President Doug Linde said on an Oct. 28 earnings call. “If people are not coming to the office, then they’re not paying for monthly parking, and they’re not shopping or dining in the areas close by our buildings.”

The lack of business has forced parking companies to lay off and furlough workers in some cities. LAZ Parking dropped 22% of its staff due to lack of demand, a spokesperson said. While the company said it has recalled 160 employees from furlough in Atlanta, LAZ notified the Georgia Department of Labor that it laid off 99 employees in November.

Icon Parking Holdings in New York City furloughed more than 880 employees earlier this year, according to a New York Department of Labor filing. The large garage operator has been sued at least 16 times this year for missing payments to landlords, claiming it is behind more than $7M in combined rent and fees, The Real Deal reported.

In May, Parking Management Inc., one of the largest commercial parking operators in D.C., filed for bankruptcy, citing business disruption due to the coronavirus pandemic.

Like other industries, the commercial parking community has had to scramble for alternative revenue streams away from the standard monthly, daily and hourly fees they exact from commuters, tourists and shoppers, especially as flexible work schedules and work-from-home arrangements may become a more permanent fixture in corporate America.

International Parking & Mobility Institute Vice President Rachel Yoka

“A lot of our members are going away … from the monthly parking [arrangements],” Yoka said. “But what that does is it destroys the revenue model that we have become so dependent on.”

Parking operators are trying to adjust now to prepare for changes in office-using behavior.

“One of the things that we've prepared for is not just offering the standard monthly parking,” SP+ Chief Growth Officer Jeff Eckerling said. “We have to have alternative products that accommodate people who are coming in three days a week.”

Other parking companies, like REEF, have begun renting out their surface parking lots for alternative uses, such as ghost kitchens, yoga studios and COVID-testing sites. 

Akridge doubts every downtown office parking garage today will stay that way in the future.

"Zoning requirements require a certain amount of parking, but those requirements were put in place years ago when the car was king," he said. "But the car is not king, many people don’t want to drive, they want to use Metro … Uber or whatever, but not park. So there are some parking garages that their best use may be growing mushrooms."

In the long run, some say the industry will recover, and perhaps even faster in markets that have relied on mass transit in the past, as cash-strapped transit agencies make cuts to the frequency of trains and buses. Eckerling said one irony from the pandemic and major cities could be that commuters return to driving single-occupancy vehicles to get to work instead of subways and other forms of mass transit out of lingering concerns from the coronavirus.

“I think we will see some of that in some of the heavy mass transit cities where you have white-collar workers who take mass transit. I think some of them are going to drive,” he said. “I don't know if it’s permanent, but it is certainly for some period of time.”

Boston Properties, the nation's largest office REIT, has a portfolio consisting almost exclusively of high-rise towers with parking decks, but it doesn't see the need to repurpose that space just yet.

“I may have a rosy crystal ball and I'm biased. I think [future commuting patterns are] going to benefit from having parking garages,” Boston Properties Senior Vice President Jake Stroman said. “I don't know many people who are going to want to wait on the train platform for the next half hour for a train.”