Pricey Parking Is a Lot of Trouble

As L.A.’s real estate market has exploded during the last three years, the price of workplace parking has spiked 10 to 12 percent.
By: ANDY FIXMER: Los Angeles Business Journal
At STA Travel Ltd.’s corporate headquarters at 5900 Wilshire Blvd., most of the staff learned the hard way that their office building had been sold:

The parking rates increased 50 percent, from $70 to $105 a month.

“We don’t really have a choice but to pay it,” said Jarrett Klein, STA Travel’s vice president of operations. “Our landlord is undoubtedly taking advantage of the situation.”

STA, which specializes in the student travel industry, is far from alone. As L.A.’s real estate market has exploded during the last three years, so too has the price of workplace parking.

The average rate landlords charged for parking in L.A. County office buildings last July was $185 for a monthly unreserved space, according to a Colliers International survey. But since then, rates have spiked 10 to 12 percent, with most unreserved spaces now fetching more than $200 a month, parking operators in Los Angeles County say.

“The parking market and the office leasing market move in sync,” said Ross Moore, Colliers’ director of market and economic research. “We had a great year on the office leasing side, and as buildings fill up, parking garages fill up. And as parking garages fill up, you can imagine what happens to rates.”

In Los Angeles County, office vacancy rates dropped by 7 percent during the last three years – and 4 percent in the last year, according to Grubb & Ellis Co. The average L.A. County office building is now nearly 90 percent occupied.

“Once office buildings get up around 90 percent occupancy, landlords aren’t worried about losing tenants because there are three more waiting for the space,” said William Francis, a vice president at Walker Parking Consultants Inc. “In a strong market, office building owners are not bashful about raising prices.”

Moreover, during the last three years, there has also been a tremendous boost in the number of office buildings trading hands in the L.A. region. Since 2003, roughly one in every four L.A. County office buildings have switched owners. When a deal closes, new owners commonly look to parking as a quick way to raise a building’s revenue stream.

“You can’t arbitrarily raise income from office rents because those rates are set under a lease – naturally you look at parking,” acknowledged developer and landlord Wayne Ratkovich, who last year purchased 5900 Wilshire Blvd., where STA Travel is located, for close to $105 million.

Supply and demand
There are other factors at play too

Garages at L.A. County’s office buildings are filling up at an even more accelerated rate due to the region’s sizzling housing market; developers are building condo projects on top of former surface parking lots, which have historically served as a source of cheap monthly parking for commuters.
With surface lots disappearing, more and more commuters are being forced to park at their office building. “We’ve lost quite a bit of our surface lots,” Moore said. “Every time a lot is taken off the market, there’s a couple hundred cars displaced and a lot of them end up in the parking structure.”

But even with parking rates on the rise, Los Angeles commuters fare better than counterparts in New York, Boston, Washington, D.C. and San Francisco, where the cost is nearly double.

That’s mainly because L.A. grew-up in the automobile age and planned better to meet its parking needs. However, there are signs that L.A. could be heading toward a parking shortage.

For example, the city has cut in half the parking requirement for office buildings on downtown’s Bunker Hill, where developers now have to provide one space for every 1,000 square feet of office space within 1,500 feet of the building. For much of the rest of Los Angeles, developers are required to provide two parking spots per 1,000 square feet of office space within 750 feet of the building.

“In downtown, land costs are so high that you can’t afford to park every person,” said Francis, who has been studying parking issues in the L.A. region for nearly 30 years and has seen rates rise and fall dramatically at times, especially downtown.

From the late 1970s through the late ’80s, a time of heavy office construction activity, developers would include 400 spots in office properties with demand for 800 spaces, Francis said. And because the developments increased the demand for parking but limited the supply, a parking shortage occurred before the end of the decade. It wasn’t until the economic recession of the early 1990s and the opening of new parking garages that the imbalance leveled off.

“In 1989 you needed to spend $240 a month and know somebody to get a parking space,” Francis said. “Three years later you could walk into almost any garage in downtown with three friends, get a group discount and pay only $80 a month.”

‘Scarce commodity’
While today’s increasing parking rates may seem steep, Francis said it’s been bad before, even prior to the late 1980s. For example, from 1979 through 1984 parking rates increased 15 percent a year compounded annually.

“Parking is probably one of the few commodities that is a great example of the relationship between supply and demand,” Francis said. “When there’s lots of supply and not so much demand, rates get soft.”

In Los Angeles, parking rates historically soften when occupancy falls below 75 percent, he said.

For Ratkovich, 5900 Wilshire Blvd. was close to 90 percent full at the time of his purchase and included one tenant – L.A. Fitness – that has a heavy parking requirement. And unlike years past, tenants can’t rent a parking space at the Los Angeles County Museum of Art, which is across the street.
Late last year, LACMA demolished its 1,200-space garage, which typically soaked-up overflow parking from the office building, to make way for the museum’s expansion project. With the garage out of commission, demand for parking in the area spiked and Ratkovich said he was forced to raise rates.

“We have a scarce commodity. How do you allocate a scarce resource? The best way to do that is by price,” he said. “The only way to increase the supply of parking is to raise parking rates until they justify new construction.”