As the automobile took over America, so did
parking lots and parking garages.
And for decades they were a pretty good
business. In fact, they were a such good
business. We kept building them.
According to experts, there are between 700
million and 2 billion parking spaces in
America. That's 2.5 to 7 spots for every
registered vehicle, and only about 10% of that is
paid.
Our aim is as a company is to really give our
clients and customers something more valuable
than money. And that's time.
That's the one thing we none of us can get enough
of.
Low barriers to entry make it a crowded,
fragmented industry.
Competition is fierce, demand is declining,
Factors are numerous but include blows.
E-commerce has dealt brick and mortar retail,
the rise of ride hailing and a post-pandemic world
where few drive into urban areas five days a
week, if at all.
With such dramatic shifts, the industry has
been forced to find ways to reinvent itself,
partly by expanding services and partly by
leaning into technological advances.
But that is, of course, risky and takes capital.
The larger folks, the folks with the capital to
invest in R&D and technological
capabilities can do things like dynamic
pricing, gateless technologies that really
differentiate them from the mom and pop parking
management company that just manages a couple of
locations in a single region.
Parking lots and garages began popping up on the
American landscape in the 1920s.
They were needed to deal with the exploding number
of cars on American roads.
In 1900, there were only 8000 cars in the United
States. 20 years later, 9 million.
And by 1929, 23 million.
Early garages were fully enclosed.
Many of them looked like ordinary office
buildings. Vehicles simply weren't as hardy
in bad weather as they are today.
In 1935, the curbside parking meter was
invented.
Some people say that parking is like sex.
If you have to pay for it, it's just not right.
People think that it really is natural that
it's free. Even in New York City, of course,
which has the highest land values maybe on
earth, 97% of all the curb parking spaces are
free.
Some early garages were run as exclusive private
clubs with car elevators and valet services.
These slowly gave way to the open air garages and
ramps familiar today in the 1960s.
Politicians encouraged and invested heavily in
garages and parking to attract consumers to
downtown areas.
They were very often family businesses.
They were run as systems and they were run in
major cities. They were a little behind the times
for a long time in point of sale technology and
inventory.
While the industry was dominated by small family
operations when Jerry Marcus started in 1977,
today it is more consolidated and more
professionalized. For example, many garages use
dynamic pricing techniques where prices
change based on how high demand is.
Parking management is often outsourced.
A lot of these management companies are
quite small, serving only a few facilities.
Some are large, such as lazy parking and park,
and a couple are publicly traded,
including ABM and SP plus.
Parking management companies like Lazy
Parking and SP plus each run more than 1 million
parking spots.
Finding reliable industry level financial
data can be difficult, but the parking
management industry, as this group of companies
is called, pulled in somewhere between $8
Billion and just over $10 billion in revenue in
2022, depending on the source.
The entire industry.
Parking management companies, landlords and
everybody else pulled in about 121 billion.
The industry is slowly recovering from the pits
of the COVID 19 pandemic. Revenues fell
to $58 billion in 2020, 56% lower than
2019.
People got very creative.
They gave COVID shots in their parking facilities
and they became temporary hospital wards.
And they did a really good job in bringing the
industry back.
Some also sold premium parking spots for higher
prices and offered valet services.
The entire parking industry is projected to
pull in about $144 in 2023.
That is a 10% increase over 2019 levels.
Yet many in the industry worry about demand
declines. As with many things in such a
fragmented industry, getting reliable numbers
is difficult. But insiders see evidence it
is happening.
Less people are using vehicles as their primary
mobility solution in terms of numbers of
demand. It is in decline in most markets except 1
or 2.
In most of these markets, such as office buildings,
the number of workers choosing to pay for
parking is declining at a rate of about 1 to 2%
annually. In 2001, about 47% of young Americans
ages 16 to 19 had driver's licenses.
In 2021, about 40% had them.
Our view is that people need to get from A to B,
and so we use technology to try to make people's
journey as friction free as possible.
And if that journey is in a car, great.
If it's in a ridesharing vehicle, fine.
If it's in a bus, fine.
Sp+ is really the only publicly traded company
that focuses mostly on parking.
Abm is also public, but relies far more heavily
on janitorial services.
Sp+ was created in 2012 through the merger of two
other companies Standard parking and Central
parking. It quickly grew from $954 Million in
2012 to more than $1.4 billion the following
year. In 2022, the company pulled in $1.5
billion in total revenue and $225 million in
adjusted gross profit.
About 75% of that came from the commercial
division and 25% from its airport services
business. That segment offers a range of
services at 158 airports in the US and Europe,
including parking shuttles and baggage
handling, among other things.
Shares of the company closed at an all time
high of $44.17 on October 31st,
2019. They then plummeted during the
pandemic and then partially recovered.
They closed on April 26th, 2023 at
$32.86.
We actually accelerated our technology
investments so that as we came out of the
pandemic, we would be more capable in the
technology space and really be able to step on
the gas in terms of leading the digital
transformation of our industry.
So that was the one thing that we did not cut
back. But obviously during the pandemic, we
scale up, we scale down.
We're used to doing that for hurricanes and
natural disasters.
Usually it's not across the whole country all at
once. So we had a lot of practice doing that.
Something that they've always had is bringing
professionalism to somewhat unsophisticated
industry that enables you to play in the higher
revenue opportunity, higher value, higher
margin parts of the market.
You're dealing with more sophisticated clients.
It's commercial parking business serves several
types of clients. No single client accounts
for more than 6% of its sales.
There are public parking garages, the kind you
might find downtown.
There are hospitals and universities, hotels,
shopping malls and office buildings, even
cities.
We worked for the NFL and have managed all the
parking and shuttle bussing for the Super
Bowl for over 20 years.
So we have clients that have really complex
needs. And rather than presume we understand, we
need to really go to them and say, help us
understand what your objectives are.
And when we hear that, then we come back to them
with the solution that is tailored to them.
The company has contracts for on street parking
services with about 90 municipalities, including
Los Angeles, New Orleans and Atlanta.
There's 3000 cities in North America that have
on street parking, and we are one of the larger
players in that space.
Most of it has not been outsourced yet.
So we look at at the opportunity to convince
local government that outsourcing to somebody
like us, where we bring the cutting edge
technology to create low friction payments, it's
not coins in a meter.
That hopefully is a successful strategy for
growth, just continuing to do what we have done
for a long time.
Despite these successes, parking management
companies like Sp+ have faced significant
headwinds in the last few decades.
First, the rise of Amazon and e-commerce,
which led to the decline of the shopping mall and
the brick and mortar retail industry, hurting
the parking garages often attached to stores
and malls. There were also threats from
companies like Uber and Lyft.
Then there was the pandemic. During the
pandemic, total revenues declined from almost $1.7
billion in 2019 to $1.1 billion in 2020, the
lowest level since 2012.
You often heard people calling for the death
knell of parking management. You know,
Amazon's going to kill it.
It didn't. Ridesharing is going to kill it.
It didn't. And the pandemic is going to kill
it. It certainly did not. What we've seen is a
shift in the way that these management
companies do business.
Spe executives spent a considerable portion of
the company's Q4 2022 earnings discussing its
investments in technology.
Really what's changed since the pandemic is
they've really accelerated their
investments into some new growth areas or
technologies that certainly many other
folks are not investing in.
And as of 2022, technology solutions
accounted for about 2% of the company's gross
profit. It expected them to account for 10% by
2025. These solutions include an app for
customers to reserve spaces ahead of time and
pay for parking on their phones and tech for
changing prices as needed, say, for time of
day or for when there is high demand.
There is also tech for charging cars
automatically as they enter and exit a lot.
These investments, in part have led executives
to issue a bullish outlook. The underlying
parking management industry is growing at a
rate of 1 to 2% annually, but SP Plus
said in February 2023 they expect mid to high
single digit growth over the next several years.
That's a big deal when a public company changes
their long term growth outlook and it doesn't
happen often.
What we are finding with technology is that we can
deliver hardware and software on a very
competitive basis, even in situations where we
might not be a parking operator right now.
And so that makes the addressable market for us
larger than it used to be.
They aren't the only ones making these investments.
It's been remarkable how many companies have been
formed for payment systems and reservation
systems for for parking facilities.
I think it's a really exciting time.
Demand declines and uncertainty about
post-pandemic work.
Living, shopping and travel are top industry
concerns. These companies have to get
creative. The pandemic taught lessons.
The operators, I think, on the whole, realize
that they had more arrows in their quiver
than we all thought.
Parking management companies now offer
concierge services at malls.
They open doors at hotels and provide
wheelchair services at hospitals.
The parking garage may be transforming into more
of a mobility hub that acts as a storage and
service facility for a number of types of
vehicles, scooters, bikes, Ride hail or EVs.
Picture chargers at every stall.
Right. Maybe you don't even need the parking,
but you need the charge.
So you're going to use a parking garage.
Parking garages are already becoming a
location of choice for electric vehicle charging
stations. So far, it is a mixed blessing.
It is both an exciting time and a very risky
time for us. We're being asked to put in a
tremendous amount of infrastructure in our
parking facilities to be able to deal with all of
the EVs that are coming online. Some
municipalities are mandating very, very high
numbers of those chargers. It creates a
tough situation where we have spaces that could go
unused and we have more chargers than we have
vehicles right now.
The potential effects of autonomous vehicles are
tougher to identify, but these vehicles will still
need to be parked for some period of time for
charging, cleaning, maintenance or downtime.
Perhaps the autonomous vehicles is not going to
be a headwind in the same way that some of
these other trends have been, but an opportunity
for further ways to monetize the space.
I've designed several Whole Foods garages and
those folks are very interested in delivering
packages, food and even Amazon packages in
drones. And I think that that's coming.
And the parking world is a good place for that
because as our demand is going down, the last
place that gets parked will be the roof of these
facilities.
Parking garages began their history as full
service facilities with valets.
In some ways, these companies are returning
to that route now, realizing they must once
again provide more service this time to
survive.