Three Ways to Turn Your Vacant Parking Lot into a Cash Cow
May 9, 2019
Parking lots are a problem for retail developers, anchor tenants, and parking management companies.
The overarching challenge is ultimately, there are too many parking spots and many of them are rarely (if ever) used. In urban centers and downtown areas parking can consume up to 14% of incorporated land. The reason for this is twofold.
First, many urban planning committees and zoning codes employ parking minimums, which require a high number of parking spots per square foot of a commercial property. In the article, Parking Reform Made Easy, Richard Willson says, “In the mid-20th century, parking requirements were added to address surface street congestion caused by patrons driving in search of parking. Planners didn’t foresee that minimum parking requirements would favor private vehicle travel, lower overall density, and increase traffic.”
Second, decision makers in the commercial development, urban planning, and retail industries fear that insufficient parking will cause friction (because who likes to look for parking?) effectively turning customers away. And on peak shopping days, that could mean fewer sales for both big box and mom and pop shops.
The result of this paradigm is that in most developed areas, paved parking takes up nearly 50% of an average land parcel. That’s too much parking.
The cost of building and maintaining parking lots hurt retail tenants.
A parking surplus outweighs the financial benefits a retailer may see from peak shopping days. A single spot in a surface lot is about $12 per square foot but requires significantly more land to accommodate the vehicles. Alternatively, one might build a parking structure to get around challenges related to the parcel’s limited footprint, but the cost of building a garage or deck can cost $50,000-$70,000 per parking spot. When you mix in mandatory minimums, the issue is only magnified. Still, the investment in building and maintaining parking structures doesn’t go away. They come at a huge cost to the developers and anchor tenants, who are often responsible for footing the bill and thus realize fewer profits. This might be a bitter realization for most retailers, who (even on Black Friday) have never seen their lot at 100% capacity.
Parking lots prevent developers and urban planners from building vibrant places.
According to Strong Towns.org, parking minimums often make traditional development patterns impossible. Even with considerations for mixed-use property, parking lots create distance between businesses, reducing their walkability and accessibility. As we discussed in What Should Developers Know About Vitality in Urban Design?, developers are looking to create vital places, where people may gather and build community. When executed well, these qualities bring more foot traffic to their developments and in turn, allows them to charge higher rents to their tenants. Parking lots make this all unachievable. “This is the opportunity cost of parking minimums: productive uses that would have added vitality to neighborhoods and dollars to a city’s tax base may never come to pass.”
The evolving transportation landscape may hurt parking management companies in the short term and make them obsolete in the long term.
To add insult to injury, there is the very real possibility that transportation as we know it will evolve beyond the need for parking lots. Autonomous vehicles are the first iteration, but it’s not a stretch to assume that vehicle sharing, public transportation, and an increase in man-powered transportation will replace personal vehicles. With the push for sustainable, environmentally friendly methods of transportation, cities will become more walkable and people friendly. That means there will be fewer cars and a reduced or eliminated need for parking spaces.
To summarize, parking lots:
1. Are expensive to build and maintain;
2. Are not used to their full capacity;
3. Will be utilized even less in the future;
4. Are required by municipalities anyway;
5. Are intentionally constructed in excess;
6. Detract from a development or community’s health and vitality.
Lots of community advocates, like Strong Towns, are doing the good work of communicating the opportunity costs of underutilized parcels in retail developments. But for now, the root of the problem remains. You need a certain number of spots (likely far too many) to be in compliance with municipal codes. You must have them, but you probably won’t use them.
There is a better way to utilize existing lots for their highest and best use. With some ingenuity, stakeholders can attract customers, build community, and incentivize entrepreneurship while supporting local small businesses. That’s where Boxman steps in as a pioneer and advisor to savvy REITs, developers, and asset managers, to guide them through the process of turning empty parking lots into profits.
The three opportunities, that we’ve identified and tested, to generate additional revenue for underperforming assets are:
1. Pop-up Shops and Micro Retail
2. Last-Mile Distribution Facilities
3. Production Kitchens and Dark Kitchens
Pop-up shops and Micro Retail
In our article, 4 Benefits of Shipping Container Pop-Up Shops we talk about why pop-ups are great, but it’s time to discuss how pop-ups can benefit retail property managers. Pop up shops are temporary so your parking lot can stay as-is without the need for construction, building a foundation, or running utilities. The shops can be moved with a forklift. So, during major holidays, when ample parking is justifiable, they can be put into storage or temporarily moved to the side. Depending on how they’re built and marketed, managers can also collect a premium for their short-term lease. We discuss why in Three Shipping Containers Add Value to Commercial Real Estate. And when planned properly, clusters of pop-ups mimic the coveted Main Street ambiance and functionality, which attracts customers to your location.
If you aren’t convinced, last year ICSC announced that Walmart has already begun setting the stage to test town-center-style retail buildings. As an extension of the Walmart Reimagined campaign, the project is aimed at revitalizing excess parking space and boosting store traffic. Kimco Realty Corp. isn’t far behind. They’re also looking to activate underutilized parking fields in their portfolio.
With the growth of e-commerce sales and consumer demand for same day delivery, logistics companies have run into a major pain point. The last mile is the final leg of a package’s journey to its destination. Because homes are spread out, it’s the most difficult and expensive part of a package’s journey. E-commerce companies know that reducing costs and increasing accessibility to the last-mile is how they can get the upper-hand and squeeze more profit margin out of each purchase.
Last-mile distribution facilities in dense urban areas require premium locations at the right price. Unfortunately, properties with premium locations at low prices are difficult to find. So, companies like JLL are looking to underutilized space in parking lots to fill the gap.
In their article, E-retailers and delivery companies get creative to close the last mile gap between warehouse and consumer, they say, “Owners and investors are finding opportunities to repurpose overlooked or under-utilized urban infill industrial facilities – and sometimes other types of real estate – in key locations for last mile deliveries. In downtown Chicago, for example, JLL is helping the leaseholders of the Millennium Park parking garages in the city’s center to convert under-utilized space into a last mile urban fulfillment center. The first project of its kind in the United States, the new space will provide 15-minute access to nearly 230,000 city residents and is designed for use by multiple e-commerce companies.”
Production Kitchens and Commissary Kitchens
Dark kitchens are a relatively new food service option, fortified by the birth of food delivery apps like UberEats and Grub Hub. The applications began by offering restaurants the opportunity to accept delivery orders without the financial burden of taking on their own delivery infrastructure. However, many restaurants realized that they couldn’t keep up with demand, maintain their food quality in a takeout format, or add the same value without also including service and ambiance. So, dark kitchens are an answer to a market demand that many restaurants can’t accommodate.
Dark kitchens, also known as ghost restaurants, also known as phantom restaurants, are like a restaurant in that they have set menus advertised online and dishes are made to order by professional cooks in a commercial environment. However, they don’t have servers, they don’t have tables, chairs, or a storefront. Their food can only be ordered online to be delivered.
For proprietors, dark kitchens make great sense, because the elimination of customer seating and waiting areas, which are often underused, reduces overhead and staffing costs. They’ll also benefit from the ability to change menus quickly based on real data collected from orders- something traditional restaurants have struggled to successfully implement.
According to Kitchen Rebel, “Delivery companies can use customers’ order histories to identify their preferences, which in turn allows them to identify gaps in a particular neighborhood’s range of culinary options. For example, if Asian food is in particularly high demand in one neighborhood, while the supply is comparatively low, the company will set up a ghost kitchen nearby and rent it out to restaurants whose menus fit that market need. As a result, the hungry public enjoys greater culinary variety and shorter wait times. But the restaurants benefit as well, of course.”
Parking lots are a problem for developers, tenants, and lot management companies. There is a surplus of spaces that are expensive to build and maintain. They prevent communities from creating connected, vital spaces and will likely become obsolete as transportation evolves away from the personal motor vehicle. Even though they cause problems, zoning committees still employ minimum parking requirements, which means anchor tenants have underutilized space taking up nearly 50% of their properties.
However, this underutilized space provides an opportunity for developers and asset managers to generate profit from their parking lots by creating space for pop up shops, last-mile distribution centers, and dark kitchens. If you would like to see how Boxman Studios can help you profit from your unused parking spaces using shipping container shops, restaurants, and office facilities, please fill out our contact form.