Hotels Turn to Parking Fees to Drive Revenue Growth

The shock you got when you looked at your hotel bill and saw what the hotel charged you for parking was fully justified. Parking rates have indeed gone up and become a profitable source of revenue for many hotels.

In fact, on average for all hotels in a sample studied by CBRE, parking revenue rose 103.1% from pre-pandemic 2019 levels, while hotel revenue was only at 95.9%. And more hotels have cottoned on to this bonanza: 20.4% in 2022 compared to 17% in 2019 reported parking revenue. 

From the hotels’ perspective, charging more for parking has helped make up for lagging occupancy levels and depressed guest counts post-Covid, CBRE noted. The sample of 520 hotels that reported parking revenue skewed toward full-service hotels located in urban areas. They averaged 324 rooms, 65.4% occupancy—14.6% lower than in 2019, and an average daily rate of $245.25. Revenue per available room in 2022 was $157.05, down from the $163.07 reported in 2019.

Under these circumstances, parking fees offer hotels a welcome additional source of income. Parking revenue on a per-occupied-room basis increased 20.7% from 2019 levels – “a clear indication that hotels have significantly increased the price they charge guests to park. Parking rate increases also help offset inflationary pressures on operating expenses,” CBRE noted.

And even though parking fees made up only 3.1% of total revenue for the average hotel, they grew faster than total hotel revenue.

By hotel type, the percentage of parking revenue increase from 2019 levels was highest for resort hotels (22%), followed by extended-stay (8.1%), limited-service (5.2%), and full-service (1.3%) hotels.

Measured by location, resort/destination hotels saw the biggest increase in parking revenue from 2019, followed by hotels at airports. 

Hotels also enjoyed an average 8.7% increase in profits from parking in this period. But some saw much higher levels, with the top gainers resort hotels where profits soared 35.6%.

However, providing parking requires hotels to carefully evaluate their options, particularly when deciding whether to provide it in-house or through an outside company. Parking operations are relatively expensive to run, according to CBRE, with an average profit margin of 60.2%. In either case, “managing costs is critical to capitalizing on this growing revenue stream,” CBRE noted.

With fewer people working in offices in urban cores, there may be a surplus of parking spaces that depress the prices hotels can charge – unless they lease them from the owners at lower cost to maximize profits. If guests drive to stay at a preferred location, the hotel can charge more.

Other factors to consider include whether to provide valet parking or use technology like pay machines, the impact on net income of any parking sales tax, and whether to own their own parking or simply control it with long-term rights or an access agreement.

“As alternative investments gain favor in investment portfolios, urban parking is generating increased attention from private and institutional capital as well as infrastructure funds. Urban parking assets can offer investors well-located, covered land plays, attractive yields and the ability to quickly mark pricing to market rates in an environment of high inflation,” CBRE commented.