We are seeing a significant increase in the amount of inquiries, from a variety of public and private entities, seeking help with their parking strategies and a better understanding of the cost of parking in conjunction with sky rocketing materials costs and today's turbulent economy.
Parking demand and it's associated costs typically follow the flow of construction dollars except that parking is considered as an amenity, cost of development, associated with new construction or adaptive reuse.
So, what's happened to parking and why is it so confusing to so many?
Parking construction has contracted from 182 Million square feet of new construction in 2007 to just under 56 Million square feet in 2011. Construction industry statistics are typically a one year look back and one can only assume that construction bottomed in July of 2011. Assuming this to be the case it would be safe to assume that the actual work put in place in 2011 will be even lower than the 56 Million sqaure feet put in place in 2010.
So, where are we today with PARKING? That is an 70% drop in parking since 2007. Parking will not return at the same rate as construction as parking typically is associated with new construction which shows no sign of improving in the near term. How does an industry cope with an 70% decline in available business, sky rocketing materials prices, and a lower selling price?? In short, it doesn't. Who will be left standing? What will they charge? How do you know what your price will be tomorrow and who will honor it?
The danger of UNIVERSAL PRICES, NUMBERS and pundits is that they are never objective or right... Contractors have worked through their more profitable back logs as have most suppliers. The IMPACT of the desperation to garner new work since 2010 is now starting to make it's effects known with massive capitulation occurring at the subcontractor and trades level. Millions of construction jobs lost with skilled trades people having left the industry for good due to the poor employment opportunities and lack of work. We can see that this trend will ultimately continue for the next 24 months and the capitulation of more contractors and construction managers will accelerate in 2012 and continue until future parity.
Why has the price of parking garages fallen since 2008 if materials prices and wages have not? Simply, because contractors are desperate for work... falling selling (market) prices coupled with higher costs is an unsustainable business model for the parking industry and ultimately will continue to take a toll on businesses that have been discounting hoping for a quick turn around.
As the world and US head into the next stage of global delevering we will see a fall in raw material prices as recently witnessed in the latest round of the euro crisis... however... historically raw materials prices rise like a rocket and fall like a feather! Capacity contraction and price inflation will offset any savings that raw materials prices may offer as the construction industry tries to re inflate and stave off more closures.
Parking Costs... Have you considered this?
US Parking Costs Estimates and Transportation Benefit Cost Analysis
Historically construction statistics have been largely based on "surveys" and though many industries, such as McGraw Hill, have developed new tools to correlate starts to surveys there is great uncertainty regarding the deployment of new capital in todays delevering economy and the potential future demand that MAY lead to more public and private construction.
Delevering balance sheets, energy issues, telecommuting, reconfiguration of office needs, the cloud, online retailing, population demographics, REAL Money flow, banking challenges, public & private debt reduction, political polarization, the Euro SOVERIGN DEBT crisis, the world banking crisis, consumers not spending and continued attempts of the governments and finacial players to maintain the status quo of financial engineering would lead one to believe that we are far from real financial stability, stable capital markets, real capital liquidity or a reasonable way to predict the need for new buildings or the real cost of or future value of most everything!?
In response, we have assembled a few links we have recently used for interested parties to use to better understand where the economy, costs of construction and parking are headed in future. No one knows... but many are working hard to provide us with information to consider.
Well Fargo Economic Indicators
McGraw Hill Construction
Dodge Momentum Index Leading Indicator
Dodge Momentum Index Debuts
Investors Plow Equity into Projects
Living in a Modern Day Depression
Other considerations in the near term:
1) Banks have been delevering since 2007 and this won't be completed until at least 2015 if the European Crisis does not create another LEHMAN capital liquidity meltdown in the next 18 months.
2) Ratings agencies recently downgraded banks again and what does that mean? Typically as the banking industries ratings fall the "spreads" widen and this ultimately increases costs to the banks.
3) Since the financial crisis of 2008 little has changed in our financial system... Collapse was averted in 2008 however many believe that without the political will for sound monetary policy we are still far from a recovery.
4) Notional bets and swaps are still in excess of $375T as Europe slides into a protracted recession that will have major impacts on world banks, the US and emerging economies. These "hedging strategies" are still un regulated and the proper analogy is "the mountain climber with seven climbers tied together... if one falls, traditionally, the other six would keep them all from falling, however, these seven climbers are also tied to another seven who are tied to another seven and so on and so on... no one knows how much exposure anyone has anymore with notional bets (swaps) equal to TEN times the world GDP." So, if banks in Europe go... they will be tied to others, which makes the entire system unstable and unpredictable.
5) With "risks unknown" and Basel III Tier one capital requirements looming over the banks, coupled with legacy debt, FASB changes, and unregulated swaps markets... no one knows how much is enough.
6) Indicators show that the "central banks" have expanded their holdings from $1T in 2007 to over $13T today with at least $2T plus needed to stabilize the Euro Sovereign Debt to Bank issue.
7) Supporting sources of capital to finance new projects are almost non existent as firms wrestle with deleveraging and the inability for bad debt to clear as a result of changes to FASB. As the central banks buy debt they are selling it as well and this seems to be where most new LONG TERM capital is being deployed... distressed debt.
8) Private equity funds continue to become more attractive to institutional investors as they FLEE the traditional markets. These funds typically demand a greater return on investment over shorter period of time vs. a more traditional funds buy and hold. This investing strategy runs counter to long term investment strategies which include new construction of all kinds... housing, real estate, commercial, retail, infrastructure, public and private.
9) As a result of the above coupled with the governments attempts to stimulate the US economy new bubles have formed as firms try to replicate the financial engineering of the past decade. These bubbles will end badly... there are at lease three with exposure in Trillions!
10) Predictions of a short recovery are not realistic as the age of easy money sloshing around is over in our life time with no one having a clue of what the new economy will look like or even when it will manifest itself... 2020 and beyond?
11) Europe's recession is going to be deep and protracted which will slow growth in both Europe and the emerging markets, this ultimately will have adverse effects on the US Economy, US Banks pulling the US into a recession as well.
12) Keynesian Exhaustion where governments lack the will to continue to fund deficits as the private sector continues to struggle... commonly known as Austerity.
There are Three ways to get out of an INTERNATIONAL DELEVERAGING SPIRAL...
Inflate your way out... print money and delever.
Grow your way out... return to sound monetary growth policies.
Fight your way out... take your neighbors resources through WAR.
"Price is what you pay. Value is what you get" - Warren Buffet (1930- )
"In God we trust. all others bring data" - Dr. W. Edwards Deming (1901-1993)