NCP brought together a panel of experts to discuss what the future holds for car parks, including yield gaps, the changing state of town centres, new developments, the potential impact of electric vehicles and how technology could affect the sector.
- Lee Holland, property director, NCP
- Gerald Kingham, advisory and transactions services, CBRE
- David Cohen, investment manager, Ellandi
- Grace Agnew, investment surveyor, Knight Frank Investment Management
- Laura Gardner, director, living capital markets, JLL
- Kevin White, partner, development consultancy, Montagu Evans
- Gary Lee, national car park manager, Savills (chair)
Can car park leases underpin shopping centre values, given the current yield gap between car park operators and retailers?
GK: The answer to that is plainly yes. The car park is often the major anchor tenant in shopping centres. The income is often pegging with the anchor retailer of the scheme. Certainly, it will add very significant value to the scheme.
LG: From a valuation perspective, your performance would increase if you were to have a car park because it produces a lower yield on a blended basis.
GK: When investors look at shopping centres now they do break down constituent elements and apply different rents to different shops and will apply a different rent to the car park. The covenant strength we are seeing for the two biggest car park operators at the moment is much sharper than most retailers’. Because of the weighting, it will have a significant impact on improving the overall value of the whole scheme.
Do car park operators represent an opportunity to provide longterm leases against the market norm of shorter terms?
LG: Retailers are now taking shorter, more flexible leases so, as that happens, it is a way of increasing the average unexpired lease term of the whole centre and because it is a large weighting it can have a significant impact.
LH: The car park is part of the journey to where the customer wants to be. There are two aspects: the value piece and the customer operation piece. We believe, as car park operators, we bring much more to the customer journey than the owner. Why? Because we’re building infrastructure such as technology for our entire portfolio, not just for a single shopping centre. With our economies of scale we can generate the extra income that is required.
GK: That’s something that should be reflected in the lease. It’s got to be a partnership. The car park is not a destination in its own right. They need you and you need them so that should be reflected in the lease.
DC: In the current market, footfall across shopping centres is falling, which puts greater pressure on the income you have. As a landowner, you actually want to retain the control and try to get the best value out of that. Because the car park is the entry and exit point, it will have a big impact on the overall scheme. I think there is greater pressure on the long lease model than ever before because of the drop in footfall and income.
KW: Related to that is the way people are using shopping centres and town centres. Giving away a 20-year lease to a car park operator can risk stymying the potential to redevelop the scheme. For instance, if you need to change the way the shopping centre works by putting residential on there or a food store next to the shopping centre.
LG: More and more car park leases are having landlord redevelopment options in them, which provide the flexibility required to do that. Also, from an operator perspective, you can protect yourself from losing all the spaces by ensuring there are mechanisms so, if there was redevelopment, you’d be the operator of the new parking provision.
Local authorities are putting a huge emphasis on reducing vehicle emissions in town centres. What impact will this have on car parking?
KW: There’s a disconnect between local planning authorities and how people actually want to use city centres. Most planners say kill the car because of emissions. But people are not transitioning from private transport to anything else any time soon. There’s a bit of a challenge with local planning.
DC: The challenge from a landlord point of view is we don’t see the demand from people driving electronic cars yet. To put in some charging points and a back-up generator will require significant capex outlay. We are currently not at that point.
LH: It’s a dilemma. We’ve had electric charging points in our car parks for 15 years that have been used a very small percentage of the time. The world is changing; our dilemma is how fast is it actually changing? We’re doing a lot of work to maintain the technology in our car parks and to have the flexibility to extend it in the future and when suitable.
GA: It’s a question of when that’s going to happen. When we’re looking at car parks to invest in it’s fundamentally about having location, convenience and a long lease in place. Then it’s having a tenant in place that is experienced enough to know when this is on the horizon and have things in place to be ready when it does.
What impact will new technology have on the sector?
LG: I can see the aggravators being a slight threat to the traditional operators because their tech is extremely good. There are tech companies coming into automotive and doing extremely well. Car parking was invented a long time before the internet and car park operators are playing catch-up with that. It will be interesting to see how that settles over the next few years.
LH: The interesting thing for me is to see if they intend to stay in the market place or develop the tech and flip it on to the traditional operators. Will those companies end up being owned by the traditional players? The traction and beauty of those companies is that they create exciting developments and new ways for the future. On the one hand you could say it’s a threat but on the other hand it keeps us all on our toes and drives innovation.
What is the future for city centre car parks and if you are going to build a car park now what will it look like?
LG: There won’t be as many standalone multistoreys but they’ll be part of wider developments. In city centres now, car parks are not the highest use value but if you can have an element of that on the lower floors and then develop above, that is how you will get value.
GK: More and more are being developed with student accommodation above it. That’s a developing area.
LH: We are seeing both ends of the scale. We just opened a shiny new multi-storey in Salford that is a standalone car park and part of that development is integrated into a wider development scheme. As part of those conversations with the developer, we talked about putting retail on the ground floor and there was very little take-up.
At the other end of the scale, we are doing things like redeveloping existing sites, mainly in city centres, into multiuse. Where you do go and make a car park a little more complex it is more difficult to get funding because you are not looking at a single asset value and covenant. Our customers still tell us that the most important thing is location. They want to be as near to where they want to go as possible. We’ve got to make that as smooth a journey as possible to get them to where they want to go.
KW: The car park is going to be required in some form but it might end up being part of a multi-use thing or it might end up being underground. Car parks, in whatever guise, are going to be the front door and fundamental part of the town centre.
GK: There’s a huge opportunity for developers, investors and operators to work together. Investors think: build big car parks and more space is more money. It’s not more money if you can’t fill it. Working together is crucial, not just on size but on design.
LH: We have a team of people to help developers and owners on what to build and how to fund car parks into the future. A big issue we have is the number of car parks that are just design and build without any infrastructure and are just too big. It’s still a problem, which is why we need to get the message across that there are things we can do to benefit clients. We’ve all got a part to play in that. Everyone should work together from the outset when planning a new car park. Developers and owners should talk to operators about the size of the car park and design aspects at the start of the process.