Census Bureau Construction Survey: TTM Growth 131 Percent

The figure for Jun-2020 (318 million) represents year-over-year growth of +143% (vs previous year's 131 million). What could be causing this?

In its ‘Value of Construction Put in Place’ survey, the U.S. Census Bureau “...covers construction work done each month on new structures or improvements to existing structures for private and public sectors”. As for what is included, “data estimates include the cost of labor and materials, cost of architectural and engineering work, overhead costs, interest and taxes paid during construction, and contractor's profits”. There are a number of possible reasons for the near-exponential construction growth in the industry since mid-2019.

One potential reason could be the rapid-growth in Plug-In Electric Vehicle (PEV) sales, which may induce facility operators to provide charging stations as an amenity.

There has also been an increasing trend towards the adoption of technology, with the use of IoT (internet-of-things) sensors to provide facility managers and customers with real-time information about parking availability. These improvements may be reflected in the ‘Value of Construction Put in Place’ figure.

Another possible reason could be the use of parking lots in a Covered Land Play strategy. In a covered land play, an investor would buy real-estate (in this case, a parking lot) which is built on land that they believe will appreciate in value in the future. In the short to medium term, the land will generate revenue based on its current use (parking fees). According to Forbes, "because parking is often the least valuable zoning in a central business district, these assets (and their associated air rights) become prime candidates for redevelopment in a future real estate bull market". Although land costs are not included in the Value of Construction Put in Place survey, the increased construction expenditure may include expenditure on parking lots as covered land plays, enabling the lots to produce revenue in the near-term while offering the potential of high returns in the future through redevelopment.

Overview of the Parking Industry

It seems like an afterthought; a necessary, albeit inconvenient, part of getting where you need to go. Whether you’re going to the hospital, the mall, the theater, the airport, or any other destination at a reasonable distance from home, if you’re someone who owns a vehicle there is one last thing you must do once you get to your destination: find a parking space.

Various estimates conclude that the average vehicle is parked 95% of the time. According to INRIX, Americans spend an average of 17 hours per year looking for parking, costing a cumulative 73 billion dollars annually. This translates to approximately $345 per driver in wasted time, fuel, and emissions. To avoid getting a ticket for overshooting the time on the parking meter, Americans overfeed meters by a cumulative $20 billion dollars a year, which comes out to approximately $97 per driver. The annual search cost per driver shoots up in more densely populated cities, with drivers in New York City spending 107 hours (~4.5 days) per year looking for parking, costing them $2,243 annually. 

Although many consider parking little more than a necessary evil, the industry itself is worth $131 billion and generates close to $30 billion in gross parking revenues, annually. It is difficult to come up with an exact figure for the number of parking spaces in the United States, however, estimates put the number at up to 8 parking spaces per vehicle. If we take the figure for the total number of registered vehicles in 2018 (273.6 million) and multiply that by the aforementioned 8 parking spots per vehicle, the estimated number of parking spots in the country comes out to be roughly 2 billion.

The parking industry may be further subdivided into two kinds of players: parking construction & design, and parking management.

Parking construction & design deals with the building of physical spaces that will serve as parking lots for vehicles. Parking may be built as part of another establishment such as an office building or an apartment complex, or it may be a stand-alone lot. When it is built as part of another project, it is usually constructed to satisfy minimum parking ratio requirements, which specify a set number of parking spaces per thousand square feet (or other relevant metric) of the original project. Parking ratios vary according to the intended use of a project, local regulations, and demand projections. According to WGI’s Parking Structure Cost Outlook for 2020, the median construction cost for a standard parking structure is $22,200 per space or $66.34 per square foot. The cost of construction for a parking structure varies with location and the number of enhanced features that a facility chooses to incorporate.

Parking management, as the name suggests, deals with the day-to-day operations of a parking facility. This primarily includes revenue collection, but parking management companies may also take on additional responsibilities such as the provision of valet service, baggage handling, etc. There are two main types of industry operating arrangements, namely Management Type Contracts and Lease Type Contracts. Under management type contracts, the parking management company receives a fee for services rendered, which may be fixed or variable. Primary responsibilities include hiring, training, and staffing of personnel, and providing revenue collection, accounting, record-keeping, insurance, and marketing services. These contracts usually have a one to three-year term. In the case of lease type contracts, the service provider pays the property owner a fixed rent or fee, a percentage of proceeds from the operation, or both. The service operator collects all revenue and is responsible for most operating expenses. These types of contracts tend to have a longer duration, ranging from three to ten years.

Furthermore, there are two main types of parking facilities to consider: on-street and off-street. Most on-street parking facilities are managed by municipalities, with off-street facilities in the form of surface parking lots and multi-level facilities being privately managed.

Although at first pass the industry may not seem like a prime candidate for disruption (after all, there are not a lot of complex moving parts involved in parking a vehicle), the industry has been going through an evolution of its own by embracing technology aimed at reducing the friction associated with the parking experience.

Emerging Trends in the Parking Industry

Impact of the COVID-19 Pandemic

Short-term Impact

Parking revenues have fallen sharply in the wake of restrictions intended to curb the spread of the coronavirus pandemic; the National Parking Association estimates the reduction in parking volume to be as high as 80%. The only publicly-traded parking management company, SP Plus Corporation (NASDAQ: SP) has witnessed a 66% decline in its stock price from pre-pandemic levels. A sizable chunk of parking revenues is tied to economic activity in other sectors, particularly those that involve the congregation of a large number of people at a single venue. These sectors include airlines and airports, the hospitality industry, retail shoppers, and sports event attendees. As it happens, this sort of economic activity has been the worst-hit by the pandemic.

The current situation has forced facility owners to come up with novel ways to generate revenue. Some parking lots have been repurposed to function as COVID-19 screening centers, while others are bringing back the concept of drive-in cinemas to provide much-needed entertainment to customers deprived of the experience of going to the movies. The closure of dine-in facilities at restaurants has led to the adoption of other ways to deliver food to hungry customers, such as curbside pick-up, which functions by transforming on-street parking to free, short-term parking for restaurant take-out. Due to fears of disease transmission, the pandemic has also accelerated the adoption of digital payments, providing customers with a contactless way of paying their parking dues.

Medium- to Long-term Impact

As a result of the coronavirus pandemic and the associated shelter-in-place orders, public transit ridership has plummeted. However, as the economy reopens and people return to their workplaces (particularly for occupations where work-from-home does not represent a feasible option), the question is: what now? As health concerns continue to limit public transit ridership, many people could be turning towards vehicle ownership to get where they need to go. This may translate to a greater demand for parking facilities in some communities. Over the medium term, until mass inoculation is a reality, we believe that consumers’ transportation preferences will be altered in favor of vehicle ownership over public transit utilization. On the other hand, if workplaces continue to operate on a work-from-home or hybrid model, this would lead to a considerable decrease in the utilization of parking spaces.