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Parking space a viable option

04 Oct 2007
An investment in parking space is currently a "hot" option.

The Alliance Group's CEO, Rael Levitt, says there is a huge demand for parking space, so an investment in it is a great option, without the risk, cost and bother associated with residential or commercial property.

Companies usually purchase parking space to meet demand for secure parking from their employees as well as for investment purposes. This makes sense because it is more lucrative for a company – depending on its long-term plans – to invest in parking rather than pay R500 or more for each parking bay it requires. The same logic applies to residential parking.

It is also perfectly viable for a person to simply choose parking space as an investment option. Most people who opt for this investment purchase parking space from the developers or owners of sectional title schemes as this type of parking space is investor friendly.

CBDs constitute good locations for parking space investments because of demand for parking space from their current work forces, the increasing amount of people relocating to CBDs as well as the conversion of office space to residential space in CBDs.

"The cost of a parking bay in Cape Town's CBD is around R100k, which on a lease basis would go for R1k per month, excluding tax, with approximately R150 going toward levies for the bay each month," says Levitt.

"In Clifton, the cost of a parking bay is between R250k to R500k. Yes, it's exorbitant, but R500k is what they sometimes go for.

"In Johannesburg's CBD, on the other hand, a parking bay goes for about R50k."

Levitt points out though even though there is increasing demand for parking space in CBDs, there are many other good locations in which to invest. "There is big demand for parking bays in places like Sandton and Rosebank and other urban nodes," he says.

Another investment option in this sector is the conversion of whole buildings into parking garages or the construction of garages.

FNB property strategist John Loos, says this type of an investment requires some thought. "People in the thick of parking garage investments have complained of low yields. The upside, though, is low maintenance, i.e. managing a parking garage is a lot easier than managing office premises.

"However, I believe that despite these complaints the longer-term performance of parking garages will be good because there are increasing shortages in parking bays all over the place.

"New parking space is effectively required for all the new vehicles hitting the roads. This has come about because of the increasing affordability of vehicles, which sees people on lower salaries, who previously used public transport, purchasing their own vehicles.

"What is also happening is that companies are trying to use space more productively, which really means cramming more people into confined spaces. This, combined with more employees using their own vehicles, has resulted in a loud demand for more office parking space.

"There are especially parking shortages with older buildings because the buildings have been designed in such a way that it makes it very difficult and costly to rectify the problem.

"The bottom line is that before the advent of public transport, which is still a number of years away, there will be strong economic growth and demand for parking space.

"So all in all I suspect that people with well-placed parking garages will get good returns."

Loos explains that he had heard of companies employing a park-and-ride facility and certain banks providing bus services from Pretoria to Johannesburg in order to contend with the shortage of parking space.

"There will be many new and innovative ways of dealing with road and parking space shortages," he says.

The Minenza Group's Lin Strauss-Minenza feels investing in a parking garage is a "great" investment opportunity.

"Parking garages in Johannesburg's CBD with retail at the bottom have been well received," she says.

Minenza explains that new developments provide between four to six bays for every 100sq m, whereas older buildings don't have this parking ratio. "So in these areas there is definitely a market to put up a parking garage with retail at the bottom," she says.

"The maximum financing an investor will obtain for a parking space loan is 70% of the market value of a property, which is in accordance with most other commercial transactions."

An example of a good parking garage investment is Drummond Garage, which was recently acquired by Amdec Property Development and Property Partners. It is well situated in Johannesburg's financial district, just south of the declared "Government precinct", which is located largely within a two block vicinity of the Gauteng Legislature building.

This garage is proving so popular with car-owning staff of nearby companies that it cannot accommodate the flood of requests for parking leases it is currently receiving.

Major tenants of the garage include ABSA, with 100 of the 450 single parking bays, as well as Standard Bank.

"It is well accepted that parking is generally at a premium in city centres, and older, established business districts. In the US, for example, there are Real Estate Investment Trusts (REITS) that are able to invest predominantly or exclusively in parkades as a result of the demand for parking space. However, this is still a largely unexplored area of property investment in South Africa," explains Tertius van Dijk, investment manager of Amdec.

And then on an even broader scale, ApexHi Properties Limited expects to increase revenue from parking rentals in its R9,3bn portfolio following the appointment of parking specialist Noel Waddoup of parkSA.

This appointment is indicative of the extent to which ApexHi values its parking investments.

Waddoup is tasked with investigating parking revenues generated from ApexHi's standalone parking garages, retail centres and offices in its portfolio and introduce measures to improve on them.

Tariffs will be assessed in relation to the nodes in which the properties are situated, the occupancy levels, tenant lease constraints and policies pertaining to tariff setting and reviews. In addition to looking at controls and tariffs, Waddoup will assess the marketing strategies and state of equipment for each centre.

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