Reading Dr Paul Barter’s of National University of Singapore blog, “Reinventing Transport”, on the correlation between parking changes and office rents in Asia I wondered if a similar relationship applied in the UK. In theory the return on any city centre land use should move together so there should be a clear link between commercial rents and parking charges, as one rises so should the other.
To test whether this is the case this office and retail rents I reviewed what correlation if any there is between city centre office and retail rents and the prices charged by commercial operators for off-street public parking and by local authorities for on-street parking.
Rental data was taken from the Valuation Office’s Property Market Report. The data used was Zone A rents for a standard shop unit and for self contained office suite over 1000m2. Car park charges were sourced from www.carparks4u.com using data for a large centrally located car park in each city, these were mainly privately owned car parks. It is notable how much car parking charges vary even within a small city centre area so while there is no guarantee that the data used is representative of average car parking charges in each city centre, for our purposes they are a good starting point. The charge that has been used is for a stay of four hours. On-street parking charges were taken from the relevant local authorities’ web-sites for the most central and hence expensive location; in this case the charge for a one hour stay was used.
All four data sets were then converted to an index based on the average rent or parking cost across all the cities. The resultant relationship between on and off-street parking charges and office and retail rents is shown in Figure 1.
With a few exceptions we find there is a very clear correlation between parking charges and commercial rents. The closest correlation is between office rents and on-street parking charges. Interestingly there is less of a relationship between off-street parking charges and retail rents but it is still fairly close.
Arguably parking charges are quicker to reflect changes in the market and therefore a good indicator of the changing economic performance of a town. So we can show this data in a different way and state how much rental levels are above or below the level we would expect. So taking combined on and off-street parking charges and comparing it with office and retail rents we end up with Figure 2 which shows the positive or negative variations in rent from the level we would expect if they were perfectly correlated with parking charges.
So this would suggest there is room to increase retail rents in Aberdeen and in the City of London as well as Hammersmith while they are markedly overpriced in Nottingham. Office rents look like soft in Glasgow and Edinburgh but offer potential in Southampton.
Is this a realistic way to spot rental trends across the country! Undoubtedly not but is an interesting way of looking at the anomalies in the office and retail markets.