Widely unknown as an investment vehicle, car park investment is becoming an increasingly popular option. With more limited space in city centres the financial benefits are looking more attractive to potential investors, as well as the fact that uncertain markets are influencing investors to seek alternative investment options. This asset type has proven to be popular in Australia and New Zealand and is now being introduced into the UK market.
The method is a relatively simple one and follows the Buy to Let model of property investment. Investors purchase a space or spaces and lease it out to car owners in order to receive a rental income. Investment car parks can be within a commercial building where long term leases are usually in place or they can be in public car parks on a pay and display basis.
Demand for car parking spaces in the UK is high; research from the NCP (National Car Parks) has revealed that on average drivers spend more than six days a year searching for a parking space. The poll also revealed that drivers in London spent the most time looking for parking spaces followed by Birmingham, Glasgow and Newcastle.
Ideal locations for investment are city centres with a limited availability of car parking spaces. Although purchase prices would be higher the return is likely to be higher also. Another option is to search for locations within commuting distance of a city centre, but returns are likely to be lower.
Areas undergoing regeneration are also beneficial for investment purposes, as the purchase price of the parking space will be lower and there will be an increased probability of capital growth, particularly if the parking space is close to office buildings, amenities or tourist attractions for example.
There are several benefits to car parks as an investment. The start up costs are low, there will be no need for renovation at the point of purchase and it is a low entry point investment. It also produces regular rental income for the investor. Some investments offer guaranteed rental income as part of the investment, an added benefit.
Some of the downsides are that it is not possible to add value to the asset through renovation as you can with traditional property investment and there is limited information available regarding capital appreciation and performance of the asset type due its rarity, particularly within the UK.
As with any investment there are positive and negative points. Investors need to decide whether or not the benefits would outweigh the negatives for them and if this investment type would suit their portfolio.
- Friday 05 November 2010