Quick errand
P1 can be reasonable if you are picking something up, stopping for coffee, or know you will be back at the car very soon.
City Center
Where to park in Reykjavik city center
If you are trying to park in Reykjavik city center, the best answer for most visitors is not the closest open space. It is usually a better-value street a little outside the most expensive core, unless your stop is very short or you really need the convenience of a garage.
Short answer
For most downtown visits longer than a quick errand, check P3 before paying for P1. Use a garage only when you truly value the easiest possible arrival, are carrying luggage, or are parking near a hotel or event where convenience matters more than price.
What I would do in the center
Lunch, shopping, or a few hours downtown
P3 is often the best-value answer. This is where the savings usually start to matter without turning the walk into a problem.
Bad weather or luggage
A garage becomes easier to justify when friction matters more than price. This is especially true near hotels, Harpa, or a timed reservation.
What visitors get wrong about city-center parking
Mistake 1: treating every downtown street as the same price and the same value.
Mistake 2: paying for the closest space before deciding how long the visit will really be.
Mistake 3: assuming the garage is automatically the smartest option because it feels simpler.
Best practical rule
If you are staying more than a very short time, stop optimizing for the first 30 seconds after you park and start optimizing for the total cost of the visit.