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Self-Driving Cars: A Game Changer for Commercial Real Estate?

Wednesday, July 20, 2016

Real Estate Indicators from HFF Director Ben Sayles of HFF's Boston office.

Everything in life is somewhere else, and you get there in a car.

– E. B. White

The future is now: Self-driving cars have moved from fantasy to reality. Technology companies, including Alphabet, Apple and Intel; traditional automobile manufacturers such as BMW, Ford, GM, Nissan and Toyota; and hybrid companies like Tesla are all deploying significant resources to make this revolution happen even faster. Much speculation has been made regarding the impact this new technology will have on everyday life, but what affect will it have on commercial real estate?

So Where Are We and Where Are We Going?

Throughout history, the available modes of transportation have driven real estate development. In the Colonial times, cities clustered around ports, as ships were the main means of delivering raw materials, finished good and even new residents. With the introduction of the light rail, the “Streetcar Suburb” came into existence. The proliferation of the automobile meant that people could live in one location and work in another, thus began urban sprawl. During these successive periods of progress, infrastructure and real estate development were forced to adapt from a primarily pedestrian-oriented environment (save for the occasional horse and carriage) to an auto-centric lifestyle with ever-widening roads and ever-increasing need for parking.

Currently, we are in the midst of a paradigm shift; with the advent of ZipCar, one no longer needs to own a car. With the advent of Uber and Lyft, one no longer needs to own or drive a car. The next evolution – the self-driving car – has the ability to completely revolutionize our built environment.

Impact on Commercial Real Estate

While it is not yet clear how self-driving cars will ultimately take form, it is certain that their mainstream adoption will create shock waves throughout the commercial real estate industry.

Blurred Lines: Self-driving cars will dramatically blur the lines between cities and suburbs as the transportation barrier between the two will likely be erased. The push/pull of urbanization and suburbanization has been a fascinating trend since the development of the modern city. Between 1950 and 2010, suburbanization was a dominant force, as people opted to live further outside of cities to get open space and a better quality of life, all the while accepting the commute as the price of admission. Recently, that mindset shifted as urbanization and the “live-work-play” experience are equally prized by millennials, young families and empty nesters. With the advent of self-driving cars, along with the expectation of a reduced commute and better access, people will be able to live where they want to live, work where they need to work and play where, and when, they want to play. 

Urban Impact:  While city dwellers already enjoy high Walk Scores, self-driving cars could effectively meet any remaining transportation needs. Residents could reallocate the cost savings of car ownership, operation and parking toward things like better housing and entertainment. Entryways at many residential buildings will need to be redesigned to accommodate high volume pick-ups and drop offs. Self-driving cars would have an immediate impact on traffic. Not only do people speculate there to be fewer cars on the road, but also the synchronization of cars would hopefully allow traffic to flow much more smoothly and with minimal accidents. Whether autonomous cars favor urbanization or suburbanization, it is clear that the increased flexibility in transportation will allow urban sprawling to remain unchecked.

Suburban Impact:  On the suburban side, autonomous driving could eliminate the biggest burden of living outside the city: commuting. Usually considered “lost” time, the commute could be used for working, sleeping, eating or recreation. For suburban office buildings, shopping malls and apartments, almost all of which, generally, have a sprawling footprint, the same facility could be built on a site half the size of today’s standards. This could potentially lead to a development boom due to the general existence of supply constraints in cities. Additionally, the trade-off of bigger yards for a bigger commute could become much less of a factor and cause a shift back out to the suburbs.

Industrial:  Self-driving trucks have the same ability to create change in the real estate industry. Currently, industrial distribution takes place via a “hub and spoke” network with manufacturers supplying large regional hubs that ship products to other warehouses, stores and homes. Having autonomous vehicles able to deliver product directly to end-users could bring about several types of change. Industrial buildings may get bigger and be located further outside of city centers as autonomous vehicles use less energy and would encounter less traffic. They could be more efficiently loaded and unloaded with a potentially wider range of SKUs that would go to a limited number of destinations. On the other hand, industrial buildings may no longer need to be so big, and, instead, the product could be housed in smaller warehouses closer to the population, and automated vehicles would then complete numerous delivery runs quickly and efficiently.

Parking as a Component of New Development:  Today, the inclusion of subsurface parking in high-rise construction can actually diminish a developer’s return. With rare exceptions, building inhabitants, particularly those in high-end residential and office buildings, generally require a certain level of parking, rather than viewing it as optional. Below-grade parking is incredibly expensive to build, and the general consensus is, the less parking you need to build, the better your economics are. With the increased reliance on public transportation, bicycling and ride sharing, municipalities have already started to reduce the parking requirements of new buildings. The advent of the driverless car could effectively eliminate demand for on-site parking in apartment buildings and greatly reduce the requirements for high-end residential and office buildings.

Autonomous Cars Need to Nest Somewhere:  These vehicles will need places to “nest” (or park) while not in use. The vehicles would be constantly roaming, but will need a place to rest when they are not needed or to recharge when they need power. This nesting is likely to come in two forms:

  • Satellite Locations: These would be one-off spaces, located throughout the service area. They could be akin to our metered parking spots of today or in dedicated spaces in different buildings, where a vehicle could go when it is not in service and await the next fare. It might also be a place where a vehicle could go for a quick charge.
  • Home Base: It is very likely that service providers would also seek to invest in large parking garages that could house a large portion of the fleet during off peak hours (nighttime and weekend days) and where mechanics could repair the vehicles as needed.

So What Now?

Less than 10 years ago, the thought of the driverless car was still viewed as something out of The Jetsons. Today, we are living in an “on demand” world, and autonomous vehicles are another incredible technology to make life easier. Driverless cars are likely to bring about some of the most significant changes in real estate and land use within the past 100 years, as architects, developers and city planners need to recalibrate their perspective on transportation. While it is hard to predict exactly what the changes will be or what they will look like, it is a foregone conclusion that our world is about to dramatically change right before our eyes.

About Ben Sayles

HFF Director Ben SaylesBen Sayles is a Director in the Boston office of HFF with more than 15 years of experience in commercial real estate. He is primarily responsible for investment sales transactions focusing on office, multi-housing and retail properties.

A graduate of Trinity College in Hartford, Connecticut, Mr. Sayles is actively involved with Urban Land Institute, NAIOP Massachusetts and the Commercial Brokers Association.





Comments (4)
Back
Massimo Todaro 22-Jul-2016 01:57 PM
You used the word "could" 17 times. The world is changing and that will impact the property market. Thank you for the insight
Ross Cromartie 31-Aug-2016 05:32 PM
Great article! I am surprised how few developers are actively considering this issue right now. There will also likely be a huge opportunity to re-adapt existing parking structures as the need for parking (hopefully) subsides rather quickly in urban areas once self-driving really gets going.
William Lichtenstein 11-Sep-2016 10:15 AM
Would hate to be the person/people still driving their own vehicle amongst a population of self-driving vehicles (SDV). How do we go from some to all SDVs in the shortest period of time? Sounds like another industrial type revolution.
Ben Sayles 12-Sep-2016 09:30 AM
Personally, I’m a car guy – the 1963 Split Window Corvette is one of the most beautiful machines ever made. I guess I get it from my dad, who grew up in the 50s when your car and your identity were fused into one.

I do two types of driving: necessity and pleasure.
1. I drive to work (or take the train), drive to the store to get a gallon of milk or that last minute thing I need for a party.
2. I also take the long way so I can check out that new office building that just finished construction, enjoy the vista from that little known outcropping or just let the wind blow through my hair with the windows down.

In my mind, both of these types of driving are going to continue in a world with autonomous vehicles. I might not need to drive to the store anymore and Amazon.com will likely be able to supply any of my last minute needs. That said, I think “car guys” will always want to enjoy the thrill of the open road. Granted owning an “old” car might become more expensive, my sense is that “car guys” will continue to highly prize the sound of an American-made V8 or the feel of a highly tuned European performance suspension.
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