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  • Frank

Form Follows Parking In Real Estate Development

Updated: Jan 6

THE BACKSTORY


With the average cost of construction rising up to almost $100,000 for a multi-level underground parking spot and the asking price hovering between $50,000-$60,000 in Toronto, real estate developers are often selling the parking spaces at a loss, and offsetting the loss through the price of the homes.


Constructing a parking lot, especially underground ones can be astonishingly expensive. They are the real-life "money-pits". The efforts take excavation crew months, deploying giant equipment and dump trucks while costing millions of dollars from the real estate developers and precious time before units are occupancy ready. A separate study has found that for cities such as Washington's Bothell and Federal Way, parking construction costs can account for 30% of the rental price for a 1 bedroom unit with 2 parking spots.


HIGHER EXCAVATION COST OR LESS UNITS


The developer's dream is just to build as high as the legal height limit based on the zone and utilize the lot as much as possible. With smaller units between 500-600 square feet, the developer might end up with hundreds of units available for lease or purchase. However, the engineering consultant reminds the developer that there is a city parking minimum that requires the building to have between 1 - 1.6 parking spots per unit, depending on the size and type of units (bachelor or 1/2/3 bedrooms).

To avoid reducing the number of units available, parking is planned to be underground.

However, general contractors will charge an enormous amount for excavation for these parking spots, a cost that can, depending on the building, equates the costs of building the units.


Plus the as the parking lot goes deeper, the cost goes up exponentially. To add salt to the wound, parking minimum never fits the size of the parking lot perfectly, oftentimes building needs to add an entire level because the building is just a few spots short of the parking requirement. To offset the expensive parking structure, the developer would offset the added parking construction costs by factoring them into the unit's selling price or rent prices. However, depending on the location of the building, this might drive the price too high, resulting in a slow and prolonged sales process or even a large proportion of unsold/leased units.

CHALLENGES WITH ABOVE GROUND PARKING


A much less desirable option would be to use part of the land for a surface parking lot which would reduce the need for too many levels of underground parking; however these parking-courtyard building often have lower aesthetic, which means lower buyer or renter perceived value, and due to the reduced building size the architect could have a difficult time fitting in staircase and corridors in the design. The truth is that subsidize parking by charging for them, after a certain price point tenants will look for parking at nearby buildings. Though renting parking in bulk and sublet them to the tenants seems like a viable solution, this still does not substitute the legal requirement for parking minimum.

THE STRUGGLES NEVER END


In the end, there is no perfect solution: time-consuming and risky parking minimum waiver application process, underground parking lot with significantly higher selling price or rent, above-ground parking with fewer units, or half-sized building with poor aesthetic and uncovered parking in the back.

Now the phrase used often by seasoned architects: "form follows parking" should start to make sense.

The developer now faces the dilemma or whether to go deeper to create more spots or to replace a few levels of the unit above ground with a parking structure to meet the parking minimum, a choice that can often be difficult to make.


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Author: Frank Jing, Strategy & Operations at GoParkr

For more information please email us at contact@goparkr.com

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