By Ken Ashley
(DETROIT) August 20, 2010
As we return from a business trip to Motown, the seemingly mundane subject of parking comes to mind. In fact, parking, and how much of it you can get in a lease, is gathering more and more attention in today’s commercial real estate marketplace. While always a factor in considering space options, those buildings that can offer higher ratios are bound to attract today’s tenants who are densifying at an amazing rate.
In urban submarkets and large urban centers such as New York, LA and Chicago, parking ratios as low as 1 space per 1,000 square feet leased are common place. However, in many cities around the US, developers sprawled out into suburban markets and built product that has ratios of 3, 4 or higher spaces per 1,000 square feet. Some of these buildings were built in the 70’s or even earlier during the time of large offices (think Mad Men) and have exceedingly slim parking ratios. While we might pine for those simpler times, today’s corporate America is hyper-efficient on all levels, including real estate and by extension, parking.
Our team is involved in several requirements across the country that are actually considering mandating that landlords build parking decks or artificially increase (i.e. pump up parking at the expense of other tenants) ratios offered for their use. One tenant was willing to take more space than needed for bodies to accommodate cars (!). Tenants may fall in love with a building, but quickly move on because they can’t fit the cars — no matter the employees.
In light of this trend, we were very interested in this recent article by Tyler Cowen (a professor of economics at George Mason University) in the New York Times entitled “Free Parking Comes at a Price.” Professor Cowen’s main point in the article (as the title would suggest) is that as a society, we are encouraging bad behavior by making it easy and free to park one’s car.
We’ll leave the bigger societal issues of charging for parking to the Times, but what caught our eye was the following quote: “If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now…” Parking, which is so often overlooked in financial analysis of deals in the suburbs does indeed have value.
For decades, developers have built most things, including parking, based on zoning requirements, which in effect allowed local governments to set the parking ratios. However, in light of the frequency of very high parking ratio needs from tenants, developers and landlords would be well advised to carefully examine parking ratios. We can certainly see a day where building values are impacted based on the availability of this precious commodity.
Tenants will increasingly find that older product doesn’t fit their needs on many levels with parking being a key issue. However, we are learning from first hand experience that landlords are willing to do what it takes to make deals, including getting very creative on parking. Our advice? In cases where you need to fit a lot of folks into a small space, don’t assume buildings won’t accommodate. But ask early and ask often.
And now we hope you will indulge us as we hum the great ’80s hit No Parking on the Dance Floor in honor of this issue. Here’s the video for those of you who missed that decade for one reason or another. Enjoy.