In the game of Monopoly, the “Free Parking” space isn’t a property for sale. In the real world, however, investors can take advantage of parking as a form of physical property that can be bought, rented or sold like any other type of real estate, with spaces being sold for as much as $200,000 apiece in densely populated cities such as Chicago.
In Africa, demand for parking is highest in “tier one” cities such as Johannesburg, Lagos and Cairo and is increasing in “tier two” cities such as Harare, Cape Town, Abuja and Nairobi. Parking facilities now present intriguing commercial real estate investments. Traditionally, most parking-related opportunities have not appealed to pension funds and institutional investors, but parking assets' low cost of capital and strong underlying fundamentals are generating new interest in this relatively undiscovered investment niche. While parking facility investment options exist in many markets, success largely depends on location.
International Investors are beginning to realize that a well-located urban parking facility in Africa offers stable, long-term revenue growth and that this asset class is becoming an important part of any diversified real estate portfolio.
The parking industry generates more than $20 billion annually in gross parking revenues, according to International Parking Institute estimates. However, unfortunately for small investors in developing countries, when opportunities become available in major markets, they are marketed aggressively to large institutional and private capital sources. As a result, sales prices usually go up, making it very difficult for small investors to get in on these deals.
A number of key global real estate brokers have now started offering car park investments as part of their portfolio in places like Abu Dhabi, London, Chicago, etc. Well-located parking properties definitely command a premium. Parking's attraction is understandable. It is a cash business. And it does not require an educated workforce or a lot of computers. Parking is commercial real estate in its most simplistic form, renting space to a car is now the real deal all over the world.
Buying a parking asset in a high-density community is an excellent option for diversifying any commercial real estate portfolio. With a sound strategy and professional involvement, these properties can generate annuity-like cash flow. They also offer a natural hedge against inflation whilst total returns on paid parking investments can be significant.
Given the current low interest rate environment in most countries in Africa, the natural barriers to entry and the attractive yields, these properties are an excellent place to park money while investors wait for equities and currencies to recover. Furthermore, this natural income play also offers potential above average returns as land values rise coupled with the annual cash flow yields.
There are places in Lagos such as Adeniran Ogunsana Shopping Mall, Mega Plaza, CMS Car Parks, MMA2, etc where car parking space is now proving to be a premium. Some reputable hotels such as Eko Hotels, Federal Palace Hotel, etc have similarly got on the train by offering regulated parking on their premises as a way of maximizing their revenue. Car Park space now cost an average of N25,000 per month in CBD’s area while in areas such as Victoria Island is its about N40,000 per month based on recent research conducted by V-Park Management Solutions Limited – a professional parking company with international recognition newly incorporated in Nigeria.
Mr. Buffett, arguably the world’s most successful investor once said that:
“As the parking industry’s older brother, commercial real estate continues to be sliced, diced, packaged and synthesized into complex investment securities, parking companies operate much like they did when the concrete was laid decades ago – a time when life was much more simple”
Most businesses rely on credit facilities, be it from the banks to fund working capital or offering it to consumers to allow them to buy their product or service. This causes a shortage of funding sources to pay for near-term expenses. Car park owners/operators work in a pretty much cash business so provide for sufficient working capital to run the company on a day-to-day basis. Taking the trade accounts and credit risk out of a business model creates short-term liquidity and more simplified operations. At a time when lenders won’t lend, structure finance is unstructured, and bond insurers can’t even insure their own bonds, cash is truly the king.
Each parking space has its own unique valuation in terms of its geographic location and location within a city as well as its location within a parking garage. A parking garage has its own “microeconomy,” in the sense that the convenience of nearby elevators and lower floor parking may increase the value of a space. Amenities such as heating and security can also add value.
There are a number of advantages to owning a parking space, first, parking spaces require minimal maintenance, second, in the case of parking spaces in garages, eviction is an easy process, delinquent leasers are simply locked out. Finally, parking spaces are cheap compared to housing in Africa and present a more affordable opportunity for real estate investment. “It is actually a very good investment for small investors,” said Wasiu Seriki the CEO, V-Park Management Solutions Limited.
Furthermore, Buying and selling parking spaces is a relatively simple process with the use of a professional car parking space broker and transactions can take place relatively quickly in comparison to larger real estate deals such as apartments and houses.
When researching potential investment spots in Africa it’s important to have in mind the eventual ‘exit’ strategy, as with any proper investment. Almost all car park investments will provide a decent yield and positive cash flow, provided the user base exits, but for professional investors it’s also important to see the liquidity aspect when exiting the investment and to ensure that capital values stay wrong
at this point.
In-conclusion, when considering a car park investment in Nigeria for instance, it’s important to draw a distinction between traditional real estate price charts and that of car parking values with the use of a consultant or field expert. Demand for parking seems to be more recession-proof, and this affords space owners and operators the opportunity to hold prices close to year-ago levels. With the right car park product, that comes with a strong operator and offers fair management fees in an emerging geographical location – that’s where the smart investor will be parking his money.
Credit: African News Online
14/05/2012
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