Parking in Austin’s CBD is a hot topic among tenants and landlords alike. As modern employers have trended toward denser office layouts, parking has become a sought-after commodity. In the past 15 years, the supply of downtown office parking has increased by 48% – going from 12,786 spots in 2003 to 18,919 in 2017. But 2.5 million square feet of office space has also been added over this same period, leaving a significant shortfall between supply and demand.
In this article, we seek to examine the state of parking in downtown Austin. Just how dire is the parking situation, and is it likely to get better or worse in the near future? What is this hot demand doing to asking parking rates? And are buildings with more parking performing better than their peers?
How Increasing Office Density is Affecting Parking in Austin
There are a grand total of 71,504 parking spaces in downtown. Of these, 65,099 are lot or structured spaces, and the remaining 6,405 are on-street spots. Portions of the off-street spots are reserved for employees or residents of office and multifamily buildings, others are available for use by the public and some vary between these two categories.
The breakdown looks like this:
|Breakdown of Austin Parking Spaces|
|Facilities with more than 25 spaces||62,805|
|Facilities with less than 25 spaces (not broken out)||2,294|
|Total Downtown Parking Spaces||71,504|
*Of these, 18,919 are in office buildings and 17,056 are in multi-family buildings
In this article, our focus will be on the 18,919 parking spaces in CBD office buildings available for use by employees. These spaces fall under the categories of restricted and varied (sometimes restricted, sometimes public). While there are technically a total of 35,975 spaces available for employee use downtown, 17,056 of those are in multifamily buildings and not included in our analysis. Our analysis is concerned solely with spaces in office buildings.
The History of Parking in Austin
Prior to 2002, Austin’s CBD was largely comprised of professional services firms that required less dense spaces and lower parking ratios. In fact, Austin was right in line with the national average of around 250 sf per employee. This would require a parking ratio of four spaces per 1,000 sf of office space (4.00:1000) to park every employee, however developers realize that not every employee uses the building’s parking and therefore build to lower parking ratios than the anticipated building density.
Given the relative low density environment of office spaces prior to 2002, average CBD parking ratios were a modest 2.15:1000 in 1975. Although the supply of parking increased between 1975 and 2002, with big increases in the 1980s, average parking ratios for office buildings in the CBD did not experience any significant change during this period.
Since 2002, there has been an influx of technology tenants into downtown and a general move toward more efficient uses of office space. This has led the space per employee count to drop significantly – almost 25% — to an average of one employee per 190 sf (5.26:1000) as of 2012.
Following this trend towards greater density, developers responded by building garages that feature higher parking ratios. In fact, office deliveries in the CBD since 2003 boast an average parking ratio of 3.29:1000. Despite these gains, the CBD average ratio is only up to 2.46:1000 in 2017.
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Parking in Downtown Austin Today
Which brings us to today. Companies like WeWork and Gerson Lehrman Group are now packing employees in at ratios in the 8 – 10:1000 range – that’s as little as 100 sf per employee. But the average parking ratios for all office buildings in the CBD are at just 2.46:1000 with a total of 18,919 office parking spaces available to tenants.
Looking to the foreseeable future there is a slate of new CBD office deliveries expected in the coming quarters, including buildings like Third + Shoal and Shoal Creek Walk, which are delivering parking ratios around 3:1000. With these and other deliveries scheduled through 2019, the average parking ratio for all office buildings in the CBD is expected to increase slightly to 2.49:1000 with a total of 21,290 office parking spots.
Currently, there are 106,6721 downtown employees, a majority of whom drive alone to work, creating a significant office parking shortfall of approximately 88,000 spaces. And, while that shortfall is mostly accounted for by public and on-street parking, there are only 71,504 downtown parking spaces (restricted and unrestricted) to go around. The limited downtown parking supply is more than evident to commuters working in the CBD.
Exacerbating the issue, if downtown job growth continues at its current compound annual growth rate of 1.8% per year (since 2005), the number of CBD employees will increase to approximately 114,500 by 2020. At that time the supply of office parking spaces is projected to increase to only 21,290 causing the parking shortage to increase by 6% to 93,000.
New office building deliveries infrequently yet significantly raise the number of CBD office spots while the number of CBD employees increases at a more consistent rate. The trend over time is that the CBD is seeing an increase in the number of employees that is outpacing the number of parking spots being constructed.
Given this shortfall, how is the hot demand for parking affecting parking rates?
Parking Rates in Austin’s CBD
While the supply of office parking in the CBD has grown by 48% since 2003, higher demand has led to a 37% increase in average asking rates for unreserved spots in office building parking garages with rates jumping from $135 in 2010 to $186 in 2017. Reserved rates have been rising too, albeit at a much slower rate. The average asking rates for reserved spaces in the CBD are sitting at $253, up 14% from 2010.
The current combined average monthly parking rate in downtown Austin is $219, which sounds as though parking rates could be reaching an unsustainable level, but before we draw that conclusion let’s compare these numbers to some other cities that have been dealing with parking shortages for much longer.
To do so, we examined the ratio of common unit prices: lease rate per sf per year over price per parking space per month. In examining the relationships of these two pricing structures, we hope to reveal, in some way, the premium value associated with parking in supply constrained markets.
In New York City, Manhattan to be specific, average asking rental rates crest at $62/sf. Manhattan is arguably the worst place to drive in the country, even with a majority of its residence and commuters utilizing mass transit or alternative means of travel in their commutes. Even with a relatively low percentage of drivers in the city, the demand for parking is such that it can sustain an average monthly parking rate of $400, which is 6.45x higher than the average asking rental rates.
The San Francisco business district has the highest average asking rental rates for office space in the country at $77.30/sf. You might expect parking rates to be similarly stratospheric, but the average monthly fee for a spot will only run you $350 per month. This 4.53x multiple of parking to average asking rental rates is surprisingly low for such an expensive city.
Coming back to Austin, the average asking rental rate for Class A office space in the CBD is $53.91 and, when compared to the average monthly parking rate (combined reserved and unreserved), we arrive at a parking rate multiple of 4.06x. This is lower than the multiples in New York and San Francisco.
While these ratios may not take into account the full picture of how rental and parking rates are related, they do offer a good reference point for comparing Austin’s parking situation to other cities.
What the Experts Say
Shaun Griffith, President of Hospitality Parking here in Austin, has worked in the parking industry for 20 years, and has his fingers firmly on its pulse. We asked Mr. Griffith to comment on the sustainability of recent pricing movements.
He believes “we are reaching the maximum of price elasticity for this cycle” and notes that we are beginning to see “employers and employees are being forced to find alternative mobility solutions such as paying employees not to drive to work, ride sharing, off-site parking with shuttles or alternative means [of commuting] such as bicycles, or parking outside of the CBD and walking.”
If prices increase beyond the maximum of price elasticity as estimated by Mr. Griffith, will parking become a luxury and, as a result, will we see more downtown employees using alternative means of travel in and out of the CBD? With Uber back in town and other ride share services available to commuters, we looked at average commuting rates to see if there was a price point where it made sense.
|Uber Cost to Commute to the Center of Downtown|
|Per Trip Cost||Average Monthly Cost|
|Old West Austin||$5||$7||$6||$200||$280||$240|
|East Austin (MLK)||$4||$6||$5||$160||$240||$200|
|Regents (SW Pkwy)||$13||$18||$16||$520||$720||$620|
Price estimates at 8:30am, assuming 20 days/month; obtained July 2017
Clearly a rideshare only makes sense (at least financially) for those living close to the CBD.
As parking demand continues to outpace supply, it will be interesting to see how many commuters look towards this alternative to avoid the cost and hassle of downtown parking.
Mr. Griffith provides a warning, as well, stating that “if we haven’t [reached the top of market rates], get ready for downtown Austin to become home to only the most elite companies, or for mobility as we know it to change dramatically.” He notes that the city will “require a much improved… public transportation system” when and if we reach that point.
How Parking Availability Influences Rental Rates and Occupancy
We also wanted to make a comparison between buildings with high parking ratios and those with low ratios to see if there was a difference between their rental rates and occupancy levels over time. To do this, we found the average parking ratio of all buildings in our analysis and separated buildings based on whether they had above or below average parking.
As you can see from the graphs below, there is no discernible difference between the two categories of building. Buildings with higher parking ratios do not show a consistently higher rental rate, nor a higher occupancy rate over time. While higher parking ratios do seem to occasionally have an effect, it is not enough to say that they are the sole cause.
Who Benefits from More Parking?
Since parking is such a big factor for landlords and tenants alike, we wanted to provide a theoretical exercise to derive what value parking adds for each party.
For this exercise, we evaluate two theoretical 100,000-sf single tenant buildings. Each building leases for $50/sf and has a parking structure that is fully subscribed at a rate of $200/space/month.
In the 2:1000 building, we see that the total parking cost per year comes out to $480,000. Total rent for the lease space is $5,000,000. In this exercise, occupancy is capped at the building parking ratio yielding occupancy of 200 people. Based on these numbers, the yearly cost (total rent plus total parking expense) per employee to the tenant is $27,400, and the cost (total rent plus total parking expense) per sf is $54.80.
In the case of the 3:1000 building, total rent remains at $5,000,000 and total parking cost rises to $720,000. In this building, the theoretical number of employees increases to 300, dropping the tenant’s yearly cost per employee to $19,067 as the cost per sf of space goes up to $57.20. In summary, a 4.4% increase in total occupancy cost yields an efficiency bonus to the user equal to a 30% decrease in cost per employee attributable to real estate.
Of course, this exercise ignores the cost to build parking relative to office space. That said, it does beg the question of whether today’s developers are optimizing design to capture the most value for tenants and for themselves.
At first glance parking rates in the CBD would seem to be the classic case of supply and demand. However, from what we have seen this has simply not been the case. The supply of parking spaces is lagging far behind the demand, and parking rates do not seem to be keeping up with rental rates quickly enough. Parking seems to be an animal of its own.
With parking rates not likely to get any lower for the foreseeable future, we may start to see an increase in migration to submarkets outside of the CBD by companies that do not necessarily need to be downtown.
Our brokers have begun to see more and more companies in the 5,000 – 10,000-sf range leaving the CBD because of the high prices, a similar migration to what Austin has experienced on the residential side. People still want to live downtown, and companies still want to office there, but many are choosing more affordable options in other areas. Companies choose the CBD for the luxury and convenience of being in the hub of Austin’s activity, but its value is starting to be outweighed by its costs.
All of this got us wondering, if you were building a building today, what should you build? And those who know AQUILA know that we cannot let that question go unanswered. Keep an eye on our website for more to come on this interesting and important topic.
- How Office Density Trends Impact Commercial Building Design [Q & A with The Beck Group]
- Five Creative Parking Solutions for Firms in Downtown Austin
- The Economics of Parking in Downtown Austin