Historically, CBD and inner city car parking assets have been a very little understood sector of the Melbourne market. Although rarely traded, they are now firmly in the sights of investors, both local and overseas, for their attributes of strong cash flow, low maintenance, zero vacancy and strong capital growth potential.
Since 1992 there have only been 4,220 off street car parks built in the CBD despite a huge influx of office workers, residents, students, shoppers and tourists over the same period. Previously, vacant development sites within the inner city have been utilised for open-air parking stations, however the apartment and education boom of the past decade has seen much of this land developed, the result being that many such car spaces have been removed, amounting to thousands of lost spaces.
Car parking is scarce
Furthermore, as land becomes scarce freestanding car parking stations are now facing redevelopment to make way for larger buildings. Recently, the Scots Church car park (a freestanding commercial car park of about 260 spaces) on Russell Street, Melbourne was demolished to make way for Westpac’s new office HQ which will house more than 2000 workers creating an even higher demand for car bays in the area.
In a traffic study, the City of Melbourne found that approximately 30% of all daytime CBD traffic is cars circulating trying to find a vacant on-street space. However, with many on-street bays being removed in favour of tram super-stops, loading zones, disabled access and bikes lanes, Council is adopting policies to direct traffic straight into commercial parking facilities. By installing directional signage and increasing meter rates (currently $5.50 per hour), drivers are encouraged to enter a commercial car parking facility, thereby easing congestion.
The product of such initiatives is that demand for car parking spaces is forever increasing leading to escalating car parking rates and the likely increase in capital values.
Investing in Car Parking
The case for investment in the car parking sector is compelling – zero vacancy, ease of management, extremely low maintenance costs, ever increasing demand for spaces and government policy aimed at limiting the construction of additional car parking the city.
We are now witnessing similar dynamics occurring in key inner-suburban activity centres such as South Yarra where rapid development in a localised area is fuelling demand for car parks. At the same time planning policies actively discourage developers from adding to the supply of bays, creating a perfect investment environment for the owners and managers of car parking facilities.
Accordingly, revenue from car parking facilities in the inner city of Melbourne and key suburban activity centres has grown rapidly over the past decade, significantly outperforming other sectors of the market such as office and retail. With the CBD’s office and residential populations surging whilst Melbourne continues to evolve into a 24 hour city, creating increased demand for both daytime and late night car parking, the trend is set to continue.
This is an extremely tightly held sector with few purchase opportunities, creating a permanent state of demand.
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