REPORT FROM THE U.S.—Among all of the ancillary services and amenities provided by hotels, parking remains one of the more diverse, location-specific propositions, lacking any kind of “one-size-fits-all” solution.
With levels of demand for parking and the amount of available space fluctuating greatly from city to city and property to property, hoteliers are staying flexible and adaptive in their approach to parking, often letting the market be their guide.
Experts explain that key parking operations decisions—such as how much in fees (if any) to charge guests and whether to manage parking internally or outsource the service—are often driven by market-related and competitive factors, much like room rates. The structure of parking operations is typically determined by which method yields the most potential return for that specific property, with the fewest associated headaches.
“I look at the cost of my personnel, the cost of insurance and whether or not I can make money. It also depends on whether I own the parking structure, or whether I have to lease it out from somebody,” said Mike Marshall, president and CEO of Marshall Hotels & Resorts. “It’s an economic factor, to me, more than anything.”
Internal or outsourced?
Perhaps the most decisive factor behind hotel parking operations is location. While many suburban and rural hotels offer free self-parking at their properties (often thanks to ample land for parking lots), urban and city-center hotels frequently need to provide a parking structure for guest vehicles, possibly including valet service, often in places where building space is at a premium. Hoteliers say ideally such a structure should at least pay for itself, if not put a small profit into the hotel’s pocket.
The immediate question that needs to be answered in these cases is whether to manage parking operations internally, or contract with a third-party provider. There’s no clear-cut decision there, either, but many hoteliers lean toward outsourcing these days, for multiple reasons.
“We often prefer to outsource parking, primarily for three reasons: the lack of financial gain, the service delivery piece, and the ability third-party providers often have to help solve various problems during demand peaks,” said Matt McClelland, EVP of operations and development for Concord Hospitality. “Many of our leaders just don’t have the in-depth experience of managing parking operations. The bottom line is, parking companies specialize in it, and for the most part they’re better at it.”
A third-party parking company also typically takes on the burden of liability for its valet service, which results in cheaper hotel insurance premiums and gives hotel owners one less legal concern to worry about, even if it’s the hotel that ends up having to field guest parking complaints. That aside, hoteliers generally look for a revenue sharing arrangement with parking providers, which in the best cases generates a small profit for the hotel.
“You’d like to make some sort of a profit, so you’d like to do some sort of revenue-share program with them,” said Marshall. “But at the same time, you’ve got to make sure that vendor is paying their bills and making their margin; otherwise, they’re not going to renew the contract with you. So it’s got to be very fair to the vendor, too.”
Name your price
Another key decision hoteliers must make with regard to parking is how much to charge guests for the service, if anything at all, and the issue also may drill down into separate pricing for self-parking versus valet service. As with room rates, hoteliers said parking fees and the threshold for what customers are willing to pay are almost entirely driven by the market and what a hotel’s competitors are charging.
“It’s really no different than how you set hotel rates: competitive shopping,” said Gary Isenberg, president of LWHA Asset Management Services. “What’s going on in the market? What is everyone else charging for parking? If I’m a hotel and I want to protect more spots for my customers, and I don’t necessarily want to sell-out with third-party parking, I may make my rates a little higher than the competition. It all depends on the supply and demand scenario, what can you charge, and do you want to fill it, or just capture as much revenue as you can and be the last to fill?”
Many operators offer parking to non-hotel guests as well, and there may be peak times when a nearby event creates a spike in parking demand. This can, in certain instances, offer an opportunity for operators—including hotels—to temporarily boost parking prices during these peak periods. Hoteliers say in some cases it’s worth it to change the pricing, and other times it is not.
“There’s an opportunity to capitalize, as long as you’re not gouging,” said McClelland. “You have to be able to change all of the communications … So by the time you get into one event and try to raise prices, you’ve got so many pricing communication touchpoints that it really becomes, ‘Guys, is it really worth it to go throughout the parking facility and change pricing online?’ We’ve taken the opportunity in the past, and it hasn’t necessarily been the best move. It’s not something we do much.”
Branding may also play into pricing decisions. Experts say that although city-center hotels often use similar parking structures regardless of brand, an urban Ritz-Carlton will typically see at least a slight fee premium over a similar spot attached to a lesser-tier brand. The rationale is that upper-end guests are already paying higher room rates and won’t scoff at an extra $10 or so in daily parking fees.
“There is a difference if your hotel guest is paying $300 a night, versus $150. They don’t have as much heartburn,” said Marshall. “The upper-scale hotels are looking at what other hotels in the market are charging, and they might say, ‘Maybe we can get a 15% to 20% premium.’ I don’t think it would be a whole lot more than that; maybe 25%. If everybody in the market’s charging $35 a night, and all of a sudden, you’re charging $75, then you’ll lose some customers, but you can probably get away with $50.”
The road ahead
The big unanswered parking question, at least for city locations, is what the future holds. Some experts point to widescale declines in car rentals—in tandem with the rise of ride-sharing services like Uber and Lyft—as a sign of the times. Should the trend continue, some hoteliers wonder how much demand there will be in the future for parking, as fewer guests arrive in their own vehicles.
“The increase in Uber and Lyft has made a huge impact,” said McClelland. “You used to be able to look at a parking garage and say, ‘If we do valet and self-park, it could be a revenue profit generation thing.’ But we’ve seen—and it’s just rough estimates—over the last five years a decrease of anywhere from almost 25% to 35% in car rentals, and it grows every year.”
That’s a trend that’s likely to continue, at least in city centers, where ride-sharing is a thriving option. Some experts, however, are already looking further beyond the latest trends, to what the traveling process will look like in the future. How guests arrive at hotels in the coming years will continue to determine the nature of parking operations, as operators continually adapt to emerging demands.
“I think what will shape parking going forward is when we get driverless cars,” said Isenberg. “Those will eliminate the need for parking, because what will happen eventually is people won’t own cars. They’ll be all on-demand, and cars will just be operating 24/7, so there won’t be a need to park. That’s going to be the big change: how technology, going forward, changes the view.”