Nobody knows for sure how much parking a new apartment property is going to need, and that uncertainty can have a big impact on developers’ building decisions.
“More and more frequently, developers are telling us that the difference between a new construction deal working financially or not working comes down to the parking requirement,” says Greg Willett, chief economist with RealPage, Inc., a provider of property management software and services.
Many apartment renters still depend on cars to get around, at least part of the time. However, tenants today are still less dependent on automobiles than they have been in years past, especially if they live a market where they can walk to amenities and have access to other transportation options. If automakers succeed in creating self-driving cars that become widely used, renters will need even fewer parking spaces in the near future.
“What will you do with all these parking spaces that you might not need in 10 years if all these trends with ride-sharing and self-driving cars continue as projected?” asks Rick Haughey, vice president for the National Multifamily Housing Council (NMHC), an industry group. Developers are doing their best to build more flexibility into their apartment buildings, especially in more urban areas.
Parking is expensive
Developers pay about $30,000 per space, on average, to create structured parking, according to NMHC. In addition to the cost in dollars, the developer must give up valuable space for parking space. If those spaces turn out to be unnecessary after the building opens, a concrete parking garage is very difficult to demolish or convert to another use.
At the same time, developers often also get punished if they do not build enough parking.
“Parking is still a desired amenity [in our Kingsley Survey of the amenities] that renters desire the most,” says NMHC’s Haughey, referring to the Kingsley Apartment Renter Preferences Report. “Though if you break that down by urban and suburban, you would probably get completely different results.”
In suburban areas, leading apartment developers like The NRP Group often build 1.6 to 1.8 parking spaces for every apartment. “Location is absolutely the key,” says Carolyn Mendel, vice president of development for The NRP Group. “In the suburbs, people love to have easy access to the commuter rail, but more often than not, residents who commute via train will still have a car to get around on weekends.”
In many urban areas that provide more transit options for residents NRP builds far fewer parking spaces—typically 0.5 to 1.5 per apartment. “We are even starting to see apartment projects in the urban core building without any parking at all, which is a relatively new phenomenon for this market [Boston],” says Mendel.
These needs are changing rapidly, especially as options like Uber and bike-share programs change how urban residents get around, Mendel notes.
As a result, to succeed, developers will need to do more than just repeat what worked for them in the past. A building that barely had enough parking for its residents a few years ago might have empty parking spaces today.
“The best way to gauge your assumptions is to survey other comparable properties,” says Mendel.
The market study may also reveal where potential residents are likely to work, which will help the developer gauge their need for cars. Developers should also look at the amenities within walking distance of the property when assessing how much parking residents are likely to need.
Fighting with local officials about parking
Traditionally, apartment developers have fought with local officials to build fewer parking spaces, according to Haughey.
That’s also changing. A few large cities now require less parking for apartment projects. Sometimes, financing providers, not zoning officials, ask for more parking spaces. “Many investors still believe in one to two parking spaces per unit,” says Haughey.
As times change, some developers are building as much flexibility as possible into their parking arrangements. “Shared parking agreements are great options for mixed-use developments. If the development is intended for retail or office use on the first floor, and apartments above, the heavy traffic hours are flipped,” says Jenny Redlin, principal and relationship manager at Partner Engineering and Science, Inc., an engineering and environmental consulting firm.
Developers can also help reduce the need for parking at their properties. This can be done by providing locked storage areas for bikes or bike-sharing stations, partnering with companies like Zipcar to provide car rentals on an as-needed basis and subsidizing resident passes for local mass transit. Landlords can even provide shuttle bus service to the nearest transit station.
“Proposing transportation demand management (TDM) measures can be very helpful in convincing local officials of why your proposed parking ratio will be sufficient,” says Mendel.
Because of the latest transportation trends, sometimes an older apartment building may have more parking spaces than it needs. These empty spaces may provide a different kind of opportunity.
“When looking at acquisitions opportunities, some investors are beginning to take into consideration whether an existing property has excess parking capacity that can be used to generate additional revenue,” says RealPage’s Willett.