Welcome to Monday’s with Martens. I’m Tom Johnson, President of NAI Martens, and I’m pleased to share with you another installment of our weekly informational update on Wichita and the commercial real estate market.
This week, we will take a look at some changes in office utilization and parking trends in the commercial real estate market.
Parking’s not the most glamorous of subjects – but is vital to nearly every major commercial real estate development; particularly those in the core area. In an era characterized by ride-sharing apps, remote workers, open-plan offices and slowly making its way into the market, driverless cars – it’s also an increasingly complex one.
These economic and social patterns are pushing owners and developers in unexpected directions. Some trends, like the growing proportion of millennials in the workforce, are having dueling and contradictory effects.
New Working Patterns Create Contradictions
The office of today bears increasingly less resemblance to workplaces 20, 30 or 40 years ago. Take, for example, the (in) famous open-plan office. An increasing number of workers now commute to spaces devoid of offices, cubicles and sometimes even conference rooms, instead conducting their business in flexible, open spaces. Additionally, telecommuting and the ability to work in remote locations has reduced the overall demand for office space. As many developers and property owners have noticed, this has the effect of increasing the density of a given working space.
A recent post from NAIOP’s cited research, found that occupancy ratios of 5 or as many as 6 workers per 1,000 square feet are becoming increasingly common. Getting more workers into existing spaces is great for firms – until you realize that the total square footage of available parking remains the same. As a result, there’s a trend of developers shifting toward a higher ratio of parking spaces to square footage.
Over the last decade, according to the NAIOP survey, the most common parking ratio stood at a 4 spaces per 1,000 square feet. Conversely, the most common request, at 40 percent, is now for 5 spaces per 1,000 feet, and 23 percent of prospective tenants asked for 6 spaces per 1,000 square feet.
Another trend that’s popular in these same, more densely-packed offices is the movement toward full- or part-time remote workers. This creates a complicated dynamic whereby offices might need 125 percent of their available parking space on one week and just 75 percent the next.
Out in the real world, these two trends appear to be offsetting each other – for now. Indeed, NAIOP members reported that while tenants are requesting additional spaces at an increasing rate, the actual daily usage in many cases remains low – at or below 3 spaces per 1,000 feet, on average.
Structured vs. Surface Parking
Where space is at a premium, a lot of developers start to think the same thing – build up, not out. The trick is figuring out where to make that decision – and how much to invest. The difficulty is the determination of the “crossover point,” where the cost of the land rises to the point that structured parking is more profitable than simple surface parking.
The development of certain other trends is heavily dependent on the economic and social geography of regions. Solutions to mitigate parking shortages or expenditures in sprawling Houston will necessarily look very different from those in denser, more vertical Chicago. Some of these same issues are prevalent in Wichita, where the availability of land in the suburban submarkets allow for abundant surface parking leaving urban locations competing for existing surface lots and utilizing available public parking garages – given the cost of new garages and the willingness of tenants to absorb the cost. Some companies have increasingly created incentives for employees to leave their cars at home – something which increasingly young, car-less millennials may embrace. But this only works where the urban and suburban infrastructure allows – indeed, more than a few workers now face the calculation of whether it’s more economically rational to keep or buy a car, or take a ride-sharing service like Uber to work every day.
Source: NAIOP – National Association for Industrial and Office Parks – Commercial Real Estate Development Association