Park Science

Heads you win

Heads you win...

Regular readers of the newsletter will be familiar with ParkScience views on how COVID has fundamentally changed the commercial parking business in Australia. These were set out in  Crisis? What Crisis. No V shaped recovery for parking and COVID-19 and Parking, which have proven to be very close to what has occured.

Within every marketplace there are contrary positions and views, and we are seeing one of these in Sydney with Wingate, a substantial private investment and finance corporation contracting to purchase the 589 bay Quay West carpark from Mirvac in Sydney’s Rocks precinct, which is adjacent to Circular Quay.

Total acquisition costs are $55.79 million on an initial yield of 4.9% for a leasehold strata lot that has 67 years remaining.  It is leased to Wilson Parking for a gross rent of $3.3m with two small retail tenancies totalling 598m2 under separate lease.

In the background, the largest owner of commercial carparks in Australia, DEXUS, has been steadily divesting itself of older commercial buildings (with substantial parking attached) and pivoting to premium towers that have far lower ratios of parking bays to office space. This commenced in 2018 with the sale of Southgate Tower in Melbourne (876 bays), and has continued with 383 Kent St (780 bays),309 Kent St (137 bays), 201 Miller St (120 bays), Grosvenor Place (561 bays) and 12 Creek St (124 bays). It has also commenced a $2.1bn twin tower development at Waterfront in Brisbane with Deloitte to move from the adjacent 36-year-old Riverside Centre tower, that has 530 bays. DEXUS has been an industry leader in positioning itself ahead of two significant shifts that we are now seeing in commercial property – a move towards premium office towers and the end of an almost 30 year one way bet on parking revenues and rents.

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The Magic Pudding

The Magic Pudding

One of my favourite books growing up in late 1960’s Perth was The Magic Pudding – written and illustrated by Norman Lindsay. It was a road story with a rag tag bunch of very Australian characters trying to prevent an even motlier crew trying to steal their Magic Pudding.

The pudding (who was more cantankerous than the Gallagher brothers) would simply reform, no matter how much was eaten of it.

This brings me to the single largest misstep for owners and operators in Australia over the last 30 years – the introduction of a Parking Levy in NSW in 1992, which was simply a tax grab dressed up in a green mantle from a business sector that had little or no public support. It spurred Victoria and W.A to follow suit.

The NSW Parking Space Levy Act 1992 imposed a Levy on parking spaces within The Sydney and North Sydney CBD (Category 1 at $200 pr annum) and secondary areas including Chatswood, St Leonards and Parramatta (Category 2 at $100 per annum). It had the dual goal of discouraging car use and funding projects to encourage public transport.

The POA (comprising all the major parking operators) lobbied very hard against it, and gained one important concession in respect of vacant bays not being liable. A second concession on limiting increases to CPI lasted but 5 years. The property industry split between retailers and commercial owners. The retailers Association managed far reaching concessions on retail carparks being exempt, except in Category 1. This remains unchanged.

This had (and has) been one of the most inequitable and illogical exemptions. For example in Chatswood the 190 bay Chatswood Interchange carpark underneath an office tower was paying Levy, although it was turning over less than 250 vehicles Monday to Friday.

Directly opposite Westfield Chatswood with over 3,000 bays turning over more than 15,000 cars a day, seven days per week was exempt. Anyone who has visited Chatswood on a weekend knows what real congestion is.

The POA tried to gain support for a complete lockdown of all Sydney CBD carparks – which would have had a minimal impact on congestion as they contributed to around 8% of the CBD traffic. Congestion in the Sydney CBD is primarily the result of through traffic, commercial traffic and traffic circulating the streets looking for on street parking bays, that are the preferred option for parkers – and the cheapest. On street bays are also exempt from Levy.

Unfortunately, there was little support for this quite radical and confrontational proposal.

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Half Time at the Football

Dave Warner from the Suburbs

Dave Warner from the Suburbs was the iconic front man for the band of the same name around the Perth pub scene blending biting social commentary with the theatrics of Johnny Leopard on guitar. His iconic song, Half Time at the Football analysed the everyday thoughts of players and spectators at the tipping point in the game.

ParkScience has dusted off the 1970 Gold Top and will endeavour to provide you with less biting, but hopefully reasoned and thoughtful commentary on the structural and cyclical changes that have been accelerated over the past year and where the Australian parking industry is placed as we enter 2021.

Work from Home – or a Home for Work?

This is shaping up as the most important structural change we will see in the engagement between employers and employees. Through December we saw surveys across the top ASX50 companies and CEO’s of large employer groups. The predominant view – and one we support is that employees have embraced working from home and anticipate that flexible work practices will become the norm for the majority of CBD workers.

Westpac’s GM for HR Shared Services, Su Duffey, said the bank (which employs over 10,000 staff in Sydney) – planned to bring all teams back to corporate offices for part of each week from early 2021, but some days would remain work from so the benefits of remote working weren’t lost.

Most likely this will take the form of working from home on Mondays and Fridays with collaborative office work in between. Looking at the Transport NSW databases on traffic volumes, this is already taking shape. As workers return to the CBD through February, post school holidays we will have a better understanding of the extent of this change.

The Office

Lift capacitySamuel Clemens famous quote - “The report on my death was an exaggeration” – could well apply to the commercial office sector.

At the heart of good businesses are people – and for the human element to thrive and propel business forward requires various forms of personal interaction. Some of this is structured and some is random, unstructured, and spontaneous. Zoom and conference calls cannot achieve this.

However, within the commercial office sector we are likely to see a greater rental and occupancy gap between premium grade, iconic buildings and lesser stock. A good indication of this is industry leader DEXUS having already sold a number of slightly lower grade commercial office buidings at or above book value. Technology will be a factor here with air conditioning systems, lifts and more flexible offerings for tenants in the better buildings. If Monday and Friday are work from home days for substantial parts of the business you will need more flexible leasing arrangements – perhaps a combination of a fixed amount of space and variable short term co working space within the same building.

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A World of Unknown Unknowns

Unknown unknowns

"There are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know." 
Donald Rumsfeld

A consistent theme of my newsletters over the past three years has been risk as it relates to the parking industry, especially for those companies that have substantial lease commitments. Some of these risks are well known – such as tenants moving or parking levies.

Parking operators in Australasia and Europe have been working on net margins of less than 10% with substantial fixed rentals. They are now in a world of pain as a result of an unknown unknown - COVID-19.

The recent release by Park24 of their financial results for the first half of the financial year (ending 30 April 2020) provide a unique insight into the impact. Park24 is the largest operator in the world and has grown since its commencement in Japan in 1971 including acquisitions over the past three years through Australasia (Secure Parking Australia, New Zealand, Singapore and Malaysia) and the UK giant NCP.

The acquisitions were covered in the November 2017 ParkScience newsletter, which covered the substantial transactional risks associated with entirely different markets and aggressive earnings forecasts in highly competitive markets. ParkScience examined known knowns, known unknowns – but did not foresee the unknown unknown of COVID-19.

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Crisis? What Crisis. No V shaped recovery for parking.

Crisis? What Crisis. No V shaped recovery for parking.

The analogue reader may remember the 1975 Supertramp album, which was rushed out after their 1974 success, Crime of The Century. It was a salient lesson for the band in moving too quickly to capitalise on their new found success. Unreasonable haste is the direct road to error.

The April newsletter had almost 5,000 downloads and created a lot of discussion about the impact of COVID-19 on parking, with a focus on Australia. We are now into the second month of lockdown, the financial pressures are mounting on the operators and there is an impasse on a solution for financial relief between them and owners.

To understand the basis of this, we need to delve into the dark arts of modelling and the assumptions they are based on. The owners are using a “V shaped” recovery to determine the impact and relief package. Operators are looking at some form of L shaped recovery. ParkScience believes it will be somewhat different, which will prove highly problematic for anyone without a strong balance sheet and (in some cases) support from their parent.

I will now set out the two views and provide commentary as to why we are likely to see a new form of recovery in the market.

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COVID-19 and Parking

Parking bays

In this edition we will look at the unprecedented and sudden downturn in volumes across carparks in Australia and how COVID 19 will fundamentally change the commercial landscape for parking operators and owners.

Authorities are trying to flatten the curve of infections to allow our medical system to cope. Isolation, quarantine and social distancing are important elements in containing the epidemic. We have already seen cancellation of all major sporting events and social gatherings limited to two people. Pubs, clubs, hotels, casinos and all convention and exhibition centres are closed. International travel is non-existent and domestic travel limited.

Qantas has laid of 20,000 workers, Virgin another 9,000 and the entire retail sector is on the verge of a complete shutdown as Myer prepares to close all its stores (with another 10,000 staff laid off) following Premier Investments and Kathmandu/Rip Curl. Corporate Australia is on a massive cost cutting exercise and parking is not immune.

You want free parking – you have now got it at Melbourne Airport! This follows on from Perth and Brisbane City Councils instigating free short-term parking in several areas. Perth City Council has also closed three carparks on the weekend. Brisbane Council has turned off 8,000 parking meters, will not issue fines and will offer $5 all day parking at its two main CBD car parks.

All of this has happened in less than a month – and we are only starting to see the impacts of rising unemployment.    

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Parking Industry at a Crossroad

The parking industry in Australia is at a crossroads.

Where to from here?
The Australian market is somewhat unique, with A REITS owning the majority of the commercial carparks in capital cities and their secondary markets, including North Sydney, Parramatta and Chatswood. They usually require a lease from an independent entity to conform to tax laws relating to trading trusts.

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Eureka moment for ParkScience

Melbourne CBD

The majority of my work centres around carparks, their design and access systems.In recent times a new string has been added to the bow, with ParkScience engaged by Wilson Parking to obtain development approval for a two level 4,000m2 office to be built on top of the successful 602 bay Eureka car park adjacent to SouthGate in Melbourne. 

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Following the last newsletter on history never repeating, WeWork’s IPO has been cancelled and SoftBank have had to inject further funds into the business as investors shied away from the top line growth strategy.

It has been an interesting rollercoaster for We Work since its commencement in 2012 with the valuation moving to $10 billion in 2016, then to $42billion in January 2019 and now down to $8 billion – which still looks very optimistic for a company that lost $900 million in the first half of 2019.

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History never repeats

Wynyard exit tunnel

I tell myself before I go to sleep...

Neil Finn wrote these words in 1981 on that great album Waiata, which I have recently rediscovered. Aptly the B side was “Holy Smoke”.

So, what has this got to do with ParkScience and the weird and wonderful world of parking you ask. It had me thinking about my early days in parking, moving to Sydney in the heady days of 1988 before FBT, Parking Levies and mobile phones. 

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Warrick Lane Carpark

Lighting and signage

One of the most interesting carparks we have worked on recently is the redevelopment of the existing Warrick Lane, Blacktown open air carpark into a mixed use commercial and public open space transformational project with Blacktown Council taking on the role as Master Developer.

Development will be staged with Council providing the initial infrastructure, including a 473 bay 4 level underground car park, a 4-storey flanking building on the eastern edge and a 1 level building on the western edge – with scope to increase to 4 levels.

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Changing of the Guard

He that wrestles with us strengthens our nerves and sharpens our skill. Our antagonist is our helper. – Edmund Burke, 1790

It was a little like a John le Carre novel – George Smiley meeting his old nemesis Karla after the end of the Cold War. As to who is who, I will leave it up to you to decide.

I met David Knight (Group General Manager Secure) recently in Brisbane to catch up after learning he was leaving Secure Parking, having started some 33 years ago. He was employed by Garth Matthews and expertly trained in all the dark arts of parking – with a flair for development and negotiations.

He rose from a sales role to be Group General Manager and was instrumental in the Secure brand maintaining its pre-eminence in the Queensland market.

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Westpac Technology Trial

Car Park Entry

Westpac are in negotiations with BaseUp for the implementation of their cloud-based technology for Westpac staff parking.

The updated BaseUp system utilises a geo fenced area immediately adjacent to the entry or exit reader that allows a smart device to communicate to the reader to activate the gate, without a customer having to press a button on their app to open the gate. Essentially a hands-free operation.

The geo fence around the gate prevents the signal from the app being detected from an adjacent gate – for example where an exit and entry gate are side by side.  From a user experience, this is a significant improvement on what is being offered in the market at present.

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No snorkel required

Canal conversion

Warehouse conversions are commonplace around the globe for residential and commercial property – but this must be a first.

Around the corner from my hotel in Amsterdam was a canal conversion – that’s right – a canal that is being converted into a carpark!

The De Pijp district was built in the late nineteenth century with narrow streets and no cars. Whilst the Dutch love their bikes (and no carbon fibre or lycra here) they also want their cars. So ZJA Zwarts & Jansma architects have come up with a great solution that provides parking for 600 cars and 60 bicycles under a canal. 

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Prop Tech

Prop Tech

This is a new term describing the transformation of the property industry – not just parking. Proptech is the convergence of property and technology. It is about leveraging new technology into the property ecosystem.

Click on the link below (subscription required) if you have not read the recent article by Folkestone's Adrian Harrington in The Australian on prop tech and how it is changing the way landlords and tenants interact – being driven by demands of tenants for flexibility and increased efficiencies in their use of space. 

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AI Park

AI Park

Artificial Intelligence and parking?

This was not even a blip on the radar five years ago. AI are in a similar field to ParkNow with a variety of white labelled products for smart devices and in car displays. They have a substantial presence in Germany with a proven product. However, the product that caught my eye was for on street parking or open-air parking lots. A single sensor can cover up to 30 spaces and is mounted on a lamp post and can be solar powered. It has a cloud-based engine that can provide extensive predictive and useage data to a central location or to users through smart devices.

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ParkNow - winner

Winner 2018 Innovation Award Intertraffic
In conjunction with BMW, ParkNow showcases a smart parking solution that directs drivers to off street parking stations (and can book a space) as well as showing availability of the most likely on street spaces based on historical and real time traffic flow data. BMW cars integrate it into their in-dash displays.

Great technology and another example of where the intersection between consumers, interconnected vehicles, access control equipment suppliers and parking operators is headed. 

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Intertraffic 2018

Intertraffic 18

ParkScience attended the premier event for parking and traffic nerds in Amsterdam in April – braving 5-degree weather to see where the industry is headed. It is a massive event with almost 900 companies from 49 countries exhibiting, and over the four event days a record of 32,317 visitors from 138 countries worldwide attended. Over 75% of attendees were international visitors.

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