My last post looked at the question of how much carparks cost to build. This one looks at the other side of the equation: what is their value on completion? The answer being, of course, whatever people are willing to pay for them.
In my apartment building, the going rate for a carpark is around $50 a week, which doesn’t seem to have changed much in the four years I’ve been here. That works out to a gross income for the carpark owner of $2,600 a year, if they choose to rent it out. However, we apartment dwellers are a transient bunch, and in a given year there are probably going to be a couple of weeks (minimum) where no one’s paying rent on the parking space. So call it $2,500 a year.
Looking at Trade Me listings for carparks in the Auckland CBD, this level of rent seems pretty common. Most of the carparks available are listed for $50-$65 a week, although it’s a fairly small sample I’m looking at. Auckland Transport has monthly parks available for up to around $80 a week, or more if you want to pay for the privilege of having a particular space rather than just the right to use one anywhere in the building. Even then, you’re not supposed to use it to store your car in all day (no “24/7 garaging option”).
You’d have to deduct your expenses from the gross rent you receive: the carpark would bump up your rates bill slightly, and presumably it would also add to your body corporate charges. I’m going to assume these costs are around $200 a year, for a net income of $2,300 a year. For a commercial operator like Auckland Transport or Wilson, GST would also need to be deducted, as well as staffing and security costs, and a whole bunch of other costs. For a private individual, speaking from experience here, you might want to deduct something for the ‘hassle factor’ of finding new people to rent the carpark, making sure their payment goes in every week and so on.
Back to my building, though. The value of this carpark as an investment depends on the “yield” you apply to it – that is, what kind of rate of return you want to get on your investment. I’m not sure what the prevailing yields are for apartment carparks, but let’s say they’re 8% – I’m probably being generous here, especially for my building where it’s leasehold and leaky, with water dripping through into the basement carpark.
At an 8% yield, this carpark is worth $2,300 divided by 8%, or $28,750. At a 10% yield, it would only be worth $23,000. Either way, that’s significantly less than what it would have cost to build. My building has two levels of basement car parking, and today it would cost around $50,000 to build each of those carparks.
For the market value of my carpark to be $50,000, it would have to be sold at a 4.6% yield, and I don’t think we’re seeing those kinds of figures in the Auckland market.
So, what we have in my building is carparks which are now worth much less on the open market than it cost to build them. And this doesn’t seem to be an unusual situation – for example, Bob Dey wrote an article back in 2007 on the Luna apartments, up the top of Symonds St, which had to build far more car parks than there was demand for, and couldn’t sell them all to the residents. The developer then tried to lease them out to offices in the area. Quoting Bob:
“The owners & occupiers of the apartment units only require or have purchased 141 carparking spaces of the 196 spaces that are available.” Burton said it had offered the remaining 55 spaces to the apartment owners & occupiers for lease or purchase, but they remained unused.
According to the council planning report, “The current allocation of parking spaces on site appears to adequately service the needs & requirements of the current occupiers & owners of the residential units. It is noted that the site is located relatively close to the cbd and is within walking distance of a number of services & facilities, including public transport systems. As such, the requirement for private vehicles in this area may not be as high as expected for such a residential development.”
Told the council’s traffic engineers said “If the residents hadn’t taken up parks they considered they weren’t required”, Cllr Graeme Mulholland commented: “There’s a big difference between taking up a carpark and taking up an offer to purchase at $45,000.”
On the other hand, I should note that the value of a carpark will depend on the location and even on the building itself. My building has got a pretty generous parking allocation, and at a guess I’d say it has around 1.5 per apartment, with many of them being tandem parks. A Herald article reports that CBD carparks can certainly sell for more than $50,000, and there’s obviously a real range of sale prices. Last year I was talking to a real estate agent at an open home – I think it was at The Beach apartments – and she mentioned apartments in that building which had a carpark were selling for $100,000 more than apartments without.
So, the upshot of all this is that carparks can be a lousy investment, or if the building in question has a limited supply, perhaps they’re not such a bad one.
Increasingly, developers are selling carparks as optional extras, rather than bundling them into the price of an apartment. This is a positive trend as far as I’m concerned: it gives buyers more flexibility, and comes closer to illustrating the true marginal cost of a carpark. For two examples, carparks in the new Merchant Quarter Condominiums are up for grabs for $35,000, including GST. At SugarTree, I saw them advertised for $60,000.
Of course, things like Minimum Parking Ratios can throw a spanner in the works – it’s harder for developers to sell carparks individually when they’re obligated to provide a certain number.