Fewer people have been parking at the city of Seattle’s Pacific Place garage, and the facility is losing money as a result. In an op-ed in today’s Seattle Times, Matt Griffin and I suggest that the city should cut rates to regain volume.
For a garage, even more so than an office building, the capital costs are fixed. The key is to fill the empty spaces. For each new dollar of parking revenue (marginal revenue), 95 to 98 cents falls to the bottom line, because the marginal cost of that marginal revenue is only 2 to 5 cents. And, as we often say, everything interesting happens on the margin.
Understanding that empty parking spaces are wasting assets, the private sector lowered its rates to fill the empty spaces when times got tough. As the Pacific Place garage found in its early years, with lower prices you can actually generate more revenue.
In economics, this is explained by “elastic demand” — reducing prices 10 percent generates more than 10 percent in demand.
If we owned the garage, we would lower the prices to generate more revenue, as the competing garages have done. Consistent with the original concept for the garage, we would lower the rates for short-term, evening and weekend parking, until the garage was close to full.
Reducing parking rates would help the city generate more garage revenue, encourage people in the area to come downtown to shop and play, and continue to fill the sidewalks with people.
The full piece is available here.