The ever-expanding suburban sprawl in car-centric American cities has long made private parking a lucrative business opportunity. The industry is currently worth an estimated $4 billion and is set to scale $10 billion by 2030, with a CAGR of over 11%.
All of this, however, begs the question, is this the right time to get in on the car parking business, or is this a dying sector that is out for one last hurrah?
While there is a lot of uncertainty surrounding the future of private car ownership, especially with the rise of the gig economy, mass transit systems, and environmentally conscious consumers, current trends, however, show that parking lots aren’t going anywhere for at least the next two decades. This segment comes with its pros, along with its share of drawbacks, which we will cover in-depth in this article.
The Pros of The Private Parking Business
The private parking business continues to attract billions in fresh investments each year, given its attractive returns and less Capex spending. Here are other advantages that have since made it so lucrative for investors and operators alike,
Low Capital Outlay – A parking lot alone requires very little investment, at least when compared to full-fledged residential and commercial buildings. Even an advanced concrete lot, with safety features and markings, shouldn’t extend far beyond the low-six figures. While sophisticated parking control systems are essential, a quick glance at All Security Equipment should uncover lower-priced alternatives for most such essentials.
Quick Returns – A parking lot can be up and running fairly quickly, with a relatively low gestation period, which shouldn’t last more than a few weeks at most. Within just a few weeks, the property starts to generate cash flows, which is again in sharp contrast to most other real estate projects.
Low Overheads – Operating a lot takes very little in the way of overheads, mostly consisting of a few workers, who can be scaled up or down based on demand, along with lighting and minimal maintenance costs.
Additional Revenue Streams – For an enterprising operator, a humble parking lot can spring a variety of related enterprises, ranging from valet services and e-reservations to even car wash and detailing addons. For high-volume areas, operators can even consider advertising to drive a sizable chunk of revenues, apart from parking fees.
The Cons of The Private Parking Business
As with most businesses, the private parking game comes with its share of drawbacks that entrepreneurs and prospective investors should know about.
Demand Fluctuation – Being a niche business that doesn’t pull crowds on its own, parking lots remain vulnerable to the whims of surrounding events and attractions.
Competitive Pressures – Without any significant moats, a successful parking lot can go downhill fairly quickly when the competition starts making entry into the surrounding vicinity.
Local Opposition – Parking lots stand to make money only when there is an absence of public parking space, and as such, paid parking lots aren’t always well received by locals. This creates further uncertainty with local hostilities and regulatory headwinds capable of upending a flourishing business overnight.
Security & Liabilities – Parking lot operators are responsible for providing security to vehicles when left unattended and thus required to assume certain liabilities. The cost of dealing with this and the risks that accompany it soon starts to weigh in on the attractive returns profile.
Final Words
Private parking lots will likely remain a lucrative business opportunity for years to come, and their attractiveness often comes from their substantially low capital overlay. This allows investors to quickly pivot to other opportunities when trends change without having to deal with any substantial sunk costs.