Car parking is probably not an investment that immediately springs to mind for most investors. But most of the general public expect to fork out for the pretty high costs for parking whenever they park in a town centre or at an airport. Car park investments cover pretty much any structure which provides parking facilities for a fee. This asset class is well known in the US and is considered relatively mainstream, but even with a number of investment opportunities recently springing up in other regions it is still considered by many to be relatively alternative. This asset class offers investors another way to allocate a portion of their portfolio to real estate.

Market Update

In 2013 the Royal Automobile Club (RAC) calculated that there were nearly 30 million car drivers in the UK, many using their vehicles to commute to work and for social activities. Various estimates put the total number of car parking spaces at between 3 and 11.3 million in the UK. In areas with airports, shopping centres, city centres, hospitals and train station the demand for parking spaces is high. Car parks are almost often a major consideration when building new commercial property in almost any location. The right investment in the right location can provide several portfolio benefits.

Investment Benefits

Firstly an allocation to commercial property such as this can provide portfolio diversification. Car parking is quite different to most property sectors but does align itself relatively close to commercial property. Returns will rely heavily on occupancy, so being positioned closed to an occupied commercial property can provide uncorrelated returns to traditional mainstream asset classes. Car park investments can also achieve strong returns. In the US, Next Parking LLC, which owns and operates many car parks across the states, report returns ranging from 6% to 8% per year. Find out about Hanover seal coating pros here.

Commercial property can come with high minimum investments and can sometimes be a difficult sector to access. As car parks go hand in hand with commercial property this can be a lower cost alternative to access the commercial property sector and its benefits.

There is also opportunity to generate long-term stable returns. Investments in the right locations will be highly in demand from users, keeping occupancy rates high and producing a steady flow of rental income. Some investment providers even guarantee returns for an initial period, which can be several years.

Residential and commercial property rarely allows for rents to be changed at short notice, which gives less flexibility to respond to events such as an economic downturn or a sudden jump in demand. Car parks on the other hand can change their parking fee structures very easily to respond to demand. This can help to ensure that rates and returns will continue to increase with inflation, providing a hedge for investors.

Considerations

Investing in car parking is not without risks. Some important points to consider as part of the due diligence process include the management company, occupancy rates and the exit strategy.

Car parks, for the most part, are unregulated investments. Finding a trustworthy management company with a good background and track record will help to ensure that that the investment is managed correctly and operating within the law.

Factors such as increased fuel prices or a fall in employment rates could have an undesired effect on the occupancy rate of car parks, as drivers will choose to drive less to save money on fuel and parking costs. Learn more about Octane and refuelling solutions.

The exit for property based investments should always be an important consideration from the outset. A few secondary market options exist for car parks, but that doesn’t always ensure a quick and favourable exit. In locations like the US, where the car park market is mature, the exit is much easier. In the UK the car park investment market is still very young and a robust resale market has not yet been established.

Investors can look at a variety of locations and areas in which to invest. Proper due diligence can help mitigate these risks and the right investment can provide the benefits of commercial property at a lower and more accessible investment level.

You might be interested to know that we will soon be releasing an in-depth report looking at the car park investment market. If you are interested in finding out more about this sector then please get in touch.