Parking Allocations – The Magic Ratio for Your Commercial Projects

Parking allocation requirements can make or break a commercial real estate project by limiting buildable space and thereby projected rental income. However, despite the challenges, savvy investors can find creative ways to maximize potential returns. 

Read on to learn more about common parking requirements and how to navigate them.

Common Parking Allocation Requirements

Commercial parking allocation requirements vary by city and county. However, they typically range from 4 to 6 parking spots per 1,000 square feet (SF) of gross leasable area (GLA). 

In other words, a 50,000-square-foot office building might require 200 parking spaces, assuming the city mandates a parking ratio of 4 spaces per 1,000 SF. 

In addition, developers must comply with the Americans with Disabilities Act (ADA), which requires the following minimum number of accessible parking spaces per total parking spaces:

Total Number of Parking Spaces Provided in a Parking Lot or Facility	Minimum Number of Accessible Parking Spaces Permitted
1 to 25	1
26 to 50	2
51 to 75	3
76 to 100	4
101 to 150	5
151 to 200	6
201 to 300	7
301 to 400	8
401 to 500	9
501 to 1000	2 percent of total
1001 and over	20, plus 1 for each 100, or fraction thereof, over 1000

That said, many are pushing to lower or “right size” parking requirements. American parking space is already underutilized, and ridesharing, driverless cars, and remote work could accelerate that trend. According to a pre-2019 study, the actual utilized parking of a 2.5 million SF commercial campus was 1.834 per 1,000. 

So keep an eye on potential reductions in parking space requirements and plan accordingly.

Cost of Building and Maintaining Parking Spaces

On top of dedicating valuable space to parking, developers must pay for its construction and maintenance. According to some estimates, surface parking can cost anywhere from $2,000 to $6,000 per space to build, while structured parking can cost $12,000 to $25,000 per space. 

From there, owners must also ensure parking spaces are properly maintained, a cost typically categorized under common area maintenance (CAM), which is the landlord’s responsibility unless the tenant has a triple net (NNN) lease.

2 Office Development Scenarios: A Comparison

Imagine you are deciding between two office development projects in the same city. The city mandates an office parking ratio of 4 spaces per 1,000 SF of GLA and requires spaces to be 9 feet wide by 10 feet deep (90 SF). 

Property A offers 5 acres (217,800 SF) of buildable space (for office and parking), while Property B offers only 2 acres (87,120 SF) of buildable space. However, Property B is also near street parking, of which an average of 50 spaces (4,500 SF) would regularly be available to employees with no pushback from the city.

Calculate Maximum Potential Office Space 

Determining the maximum office space you can build on each property while meeting parking requirements requires some algebra. Here’s a breakdown for each property: 

Property A Maximum Office Space:

• Let 𝑥 be the office space area in SF
• The parking space required is 4 x 90 SF for every 1,000 SF of 𝑥 (i.e. 4𝑥 / 1,000 x 90 which equals 0.36𝑥).
• Property A’s 5 acres (217,800 SF) must be equal to or greater than its office space plus parking space.
• Solving for maximum office space, we arrive at about 160,147 SF (𝑥 + 0.36𝑥 ≤ 217,800 → 1.36𝑥 ≤ 217,800 → 𝑥 ≤ 217,800/1.36 → 160,147).

Property B Maximum Office Space: 

• Since Property B needs 4,500 SF less parking space due to available street parking, adjust the parking space requirement to 1.36𝑥 – 4,500. 
• Solving for maximum office space, we arrive at about 67,367 SF (1.36𝑥 – 4,500 ≤ 87,120 → 1.36𝑥 ≤ 91,620 → 𝑥 ≤ 91,620/1.36 → 67,367).

Calculate Potential Gross Annual Rental Income

Assuming either project would generate $50 in annual rent per SF and maintain a 90% occupancy rate, Property A’s gross annual rental income would be $7,206,615 (160,147 SF x $50 x 0.9) and Property B’s would be $3,031,515 (67,367 SF x $50 x 0.9). 

Calculate Development Cost

To calculate development costs, first figure out the minimum parking space required by subtracting the maximum potential office space from the property’s total buildable area. 

For Property A, this would be 57,653 SF (217,800 SF – 160,147 SF). For Property B, it would be 19,753 SF (87,120 SF – 67,367 SF).

Assuming office development costs are $300/SF and surface parking development costs are about $55/SF ($5,000 per 90 SF parking space), calculate each property’s development cost:

Property A Development Cost:

= (160,147 SF x $300) + (57,653 SF x $55)

= $48,044,100 + $3,170,915

= $51,215,015

Property B Development Cost:

= (67,367 SF x $300) + (19,753 SF x $55)

= $20,210,100 + $1,086,415

= $21,296,515

Calculate Potential Return on Cost

To determine and compare each property’s potential return on cost (ROC), simply divide potential gross annual rental income by development cost:

Property A Potential ROC:

• $7,206,615 / $51,215,015 = 14.07%

Property B Potential ROC:

• $3,031,515 / $21,296,515 = 14.23%

All else equal, Property B may be a slightly better investment. 

4 Ways to Maximize Potential Returns While Meeting Parking Requirements

Of course, many other factors impact potential returns. To maximize returns while meeting parking requirements, explore doing the following:

• Build taller buildings. The more stories a commercial property has, the more area can be leased per SF of land. Just be sure to follow local building height restrictions.
• Build a parking garage or underground parking. Though more expensive, they can help you consolidate parking space and build a larger leasable property.
• Share or rent neighboring parking space. Some cities may allow you to share or rent parking space from a neighboring property through a formal agreement. 
• Raise the rent. The more parking space a property offers, the more attractive it is to tenants. Consider raising rent if your property provides ample parking.