How to calculate the value of a parking lot?
How can you determine the value of a parking lot Other than looking at what other nearby lots charge for daily, weekly, or monthly parking? This is for a local business with around 1500 employees in an area where almost all parking is free. The local business leases the building and use of an attached parking lot. Parking is not included as a line item in the lease. How could I determine what the value of each parking spot is? Surely our monthly rent would be less if we didn’t have a parking lot for all of the employees. 

There is one gated parking garage nearby, attached to a business building. Other than that there is no paid parking in the area. I’d like to take a holistic approach (to the extent possible) in calculating the value of these parking spots. 

Thanks in advance for any info or advice

Update- here’s some additional information:

 The lot is included in our lease. We are growing as a company, adding between 30-60 people per year, but we are maxed out on availabile parking. So we are looking into ways to encourage employees to either take the bus, carpool, walk or bike to work. Quite a few employees live considerably close to the office and we are trying to determine what it would take to get them to not drive alone. There are many hidden costs associated with driving/free parking and we are trying to also save our employees money. This is where the parking space valuation comes in.

It would be useful to understand what the actual value of each parking space is, based on our lease payment. Parking is not included as a line item in the lease and I am trying to calculate its value separately. Then I can look at potential incentives for people to not drive alone, such as subsidizing carpool/ride share or even paying people to bike to work.

Am I looking at this correctly? Does the parking lot have any value in terms of a percentage of our lease payment? Maybe value isn’t the correct word to use here? What is the cost to my business associated with this “free” parking lot?
[{"id": "exzlvt8", "text": "I would use the present value of an annuity to calculate cash value. If the lot could be developed, then you would need to use another method.\n\nThe basic formula (and you could make it a little more complicated for a more advanced model) would be:\n\n(Average daily rate * occupancy rate * number of spaces * 30 days in a month * 12 months in a year) - (expenses) / discount rate\n\nSo, a lot with 100 spaces, 60% occupancy and $7/day would be:\n\n7 * .6 * 100 * 30 * 12 / 0.04 = $3.78M before expenses such as taxes, maintenance, etc.", "replies": [{"id": "exzpiak", "text": "I agree with this.  \n\nA quick mental calc I like to do with parking is backing into a value with a cap rate the same way you might an apartment building.\n\nSay a space earns $100/month and average cap rates are 5.5% in that area.  If there are 10 spaces, $100*10*12 = $12,000 rev / .055  = $218,181 parking lot value.\n\nObviously this does not account for expenses, but if you have a calculator handy on your phone it can be very helpful while touring properties for a quick estimate.", "replies": [{"id": "ey2gh1j", "text": "Gotcha- makes sense. I added some additional information to my original post above. Thanks", "replies": [], "depth": 3}], "depth": 2}, {"id": "exzw6k2", "text": "Thanks for your prompt response. I\u2019m confused. The parking is currently free and there is no daily rate. Or did you suggest to use this formula for the nearby lot that charges for parking and to use that as an example?", "replies": [{"id": "ey071d7", "text": "The example above was mostly to show the math behind the valuation.\n\nSince the parking does not have much economic value (since if you started charging for it, then people would just substitute to free parking), then the only value would be the value of taxes and expenses (wear and tear), or the value it could be leased to other tenants.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ey1173l", "text": "&gt; 7 * .6 * 100 * 30 * 12 / 0.04 = $3.78M\n\nWhere is 0.04 coming from? It seems to me the lot @ $7/day with 100 spaces and 60% occupancy would generate $151,200. What figure is 0.04 that makes it jump all the way to $3.78M?", "replies": [{"id": "ey18ieh", "text": "0.04 is the discount rate used. I used the risk free rate not knowing much more about the property. Discount rate can be pretty heavily debated, but it\u2019s going to be between 4-10% for real estate.", "replies": [], "depth": 3}], "depth": 2}, {"id": "eyg0hs6", "text": "That\u2019s completely wrong. The formula you\u2019re giving is for direct capitalization, which would use a cap rate, not a discount rate. A discount rate would discount each years cash flow over the holding period back to time zero. The discount rate would only equal a cap rate in the most specific of circumstances and even then is usually hypothetical (i.e. really doesn\u2019t happen in the market). Your formula is using only the first years income, and using a discount rate is completely incorrect. Also, I understand you\u2019re using a \u201csafe\u201d rate as a discount rate, but no one would do that and would completely overstate the value. Especially using income divided by a safe rate to estimate value.\n\nEdit: just want to point out, if you mistakenly said discount rate and meant cap rate, you may want to figure that out because you\u2019ve said discount rate incorrectly in this thread a few times, and those are two completely different things.", "replies": [{"id": "eyg1off", "text": "No, it\u2019s not completely wrong. \n\nIt\u2019s a present value of a perpetuity. While it\u2019s certainly not perfect, and I do agree that doing a more detailed calculation would be a requirement for doing an investment, the math with a present value of a perpetuity is so much easier for people to understand on how a valuation might be calculated. So it\u2019s not the right math for making an investment decision, but it\u2019s great math to make a simple explain a valuation of a perpetuity.", "replies": [{"id": "eyg4fwr", "text": "I get that. I guess I was looking at it from the view as most people wouldn\u2019t view it as perpetuity. On top of seeing income divided by a discount rate equals value and I didn\u2019t want anyone to be mislead on the normal valuation process lol", "replies": [{"id": "eyg4ssy", "text": "Yeah, that\u2019s fair. I probably should have had a disclaimer.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ey06b2b", "text": "Are you looking to buy the lot or do you already own it? If it\u2019s for sale, then determine if you can find a way to monetize it/cover your mortgage + tax + other expenses. \n\nObviously charging for paring spots is a way to monetize your investment, BUT if there is a ton of free parking surrounding your lot, then you\u2019ll probably struggle to rent it out. \n\nAs other commenters have mentioned, you can value the lot based on the number of spots and revenue per spot, but it seems like there isn\u2019t a big demand for renting out parking spots. \n\nInstead I\u2019d consider finding a few food trucks to lease out the spot and putting down some benches and lights, to build a lunch spot for the local businesses. Depending on where your located food trucks will pay quite a bit to lease a parking lot, especially if you make it a \u201cdestination\u201d with several trucks, seating, and a nice atmosphere.", "replies": [{"id": "ey2g0ec", "text": "I like the food truck idea! \n\nHere\u2019s some additional information: \nThe lot is included in our lease. We are growing as a company, but we are maxed out on availabile parking. So we are looking into ways to encourage employees to either take the bus, carpool, walk or bike to work. Quite a few employees live considerably close to the office and we are trying to determine what it would take to get them to not drive alone. There are many hidden costs associated with driving/free parking and we are trying to also save our employees money. This is where the parking space valuation comes in. \n\nIt would be useful to understand what the actual value of each parking space is, based on our lease payment. Parking is not included as a line item in the lease and I am trying to calculate its value separately. Then I can look at potential incentives for people to not drive alone, such as subsidizing carpool/ride share or even paying people to bike to work. \n\nI will update my original post about with some of this information.. thanks", "replies": [], "depth": 2}], "depth": 1}, {"id": "ey1ainy", "text": "Net Income it produces / .10", "replies": [], "depth": 1}, {"id": "ey1bnps", "text": "A stand alone parking lot is typically a yielding land play waiting for a higher/better use.  Can the lot be developed?   If there is no development potential than a DCF is the right analysis, but development potential can dramatically change the value of the lot.", "replies": [], "depth": 1}, {"id": "ey2m2au", "text": "A couple of points.\n\nFirst, if parking in the area is free, and it is a single tenant building, then you would not get a discount if you didn\u2019t use/need the parking. The value of the lot isn\u2019t based on revenue it\u2019s an essentially an amenity that is required in your particular submarket. In other words, the building with parking is worth X, the building without parking is unleasable as an office building. \n\nSecond, this isn\u2019t really a real estate issue - this is an HR issue. You should be talking to them about incentives for employees who carpool, use public transit, alternative transportation etc. For example, do you have a secure bike storage area and showers for bikers? Maybe preferred parking for carpools? Work from home days? Transit FSA? \n\nIf you can\u2019t get enough people to take alternative transportation then the real estate issue is whether your property has the land to add more spots (maybe an early lease renewal contingent upon expanding the lot?) If there is an adjacent nearby building with parking that you can lease, or potentially start looking at moving all or part of your operations to a second building that can accommodate your parking needs.", "replies": [{"id": "ey334o4", "text": "Thanks. Yes it\u2019s certainly an HR/operations issue and we do have all those incentives that you mentioned. The reason I am asking this question is because it would be very helpful to know that each spot is worth x. But I see your point about how in this case parking is an amenity. Shouldn\u2019t there be a way to quantify the value of an amenity? \n\nKnowing the cost to lease spots in other nearby lots would be helpful and perhaps that is the only way I can get an idea of what a parking spot in the immediate area costs.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ey4d020", "text": "This is highly dependent on your area and what is \"normal\" for market. Most markets will have a normal number of spaces per 1000 square feet. If it has less than that critical number of spaces the rent you pay will be less to compensate. A good broker should have some idea of what this is.", "replies": [], "depth": 1}]