What impact will Autonomous Vehicles have upon commercial real estate? Wes Guckert, CEO, The Traffic Group, Inc.; Bryan Rossa, Executive Director, Public Policy, General Motors; and Revathi Greenwood, Americas Head of Investment Research, CBRE, explored this vanguard issue in a lively and wide-ranging discussion. David Winstead, Of Counsel, Ballard Spahr, and former Maryland Transportation Secretary, moderated the panel.
Wes Guckert painted the emerging big picture of what Autonomous Vehicles (AVs) mean for the commercial real estate industry. The “wildly transformative” change from the cars-with-drivers system that has prevailed for a century to the new system of driverless cars is likely to take 30 years. By then, cars will no longer be a personal capital investment but will instead become personal “mobility-as-a-service.”
What areas of commercial real estate will AVs impact most? In 10 to 20 years, AVs are likely to reduce the demand for parking by 50 percent—creating a substantial real estate development opportunity, particularly in making urban infill sites available. Architects can design building footprints and surface parking so that they may readily be repurposed in the future. Developers planning structured parking now “need to build garages with high floor to floor dimensions for future conversion” to gyms, local clinics, retail, storage, and other uses.
AVs will also reduce the demand for commodity grocers, convenience stores, and gas stations. However, major retail centers with a variety of food, entertainment, and services should continue to do well. In addition, changing traffic patterns due to AVs will affect hotels and motels.
The decline in driving is already impacting public agencies, but they are not prepared for this impact, let alone the impending impact from AVs. Agencies are already losing revenue from the decline in Millennials seeking driver’s licenses, diminished parking ticket revenues, and shrinking driving under the influence of alcohol fines. Municipalities have not come to grips with how AVs will affect planning, zoning, environmental, and other land use issues. Public rail and bus transit systems seem reluctant to address the impact of AVs on their capital planning and operations, and New York, San Francisco, and Las Vegas are already losing bus ridership.
On the brighter side, “Autonomous Rapid Transit”(ART) in the form of self-driving buses is currently being tested, and might be combined with Bus Rapid Transit (BRT) to create better transit systems. Further, from a traffic engineering perspective, AVs will enable road lanes to be reduced from 12 to 9 feet, which will often enable adding an extra lane or two. Finally, the new development opportunities created by the reduction of parking ultimately will increase the municipal tax base.
Bryan Rossa of General Motors Public Policy asserted: “We will see more changes in automobile transportation in the next 5 years than in the last 50.” GM has already invested $500 million in Lyft, the fastest-growing ride sharing company. Major automobile companies like GM are adjusting rapidly, and investing heavily, in order to fully capitalize on the emergence of AVs. Rather than simply manufacturing cars, as AVs fully unfold, auto companies will instead be selling personal mobility-as-a-service that is “connected, electric, autonomous, and part of the shared economy.” By 2030, 15% of new cars will be fully autonomous, which will reduce congestion.
Rossa was especially confident that AVs mean a breakthrough in user safety, not just in personal convenience. Currently, 94% of automobile fatalities are due to human error. AV’s will eliminate this principal cause of auto deaths–but will the computer, telecommunications, and related systems needed in order to operate a system of AVs introduce second order human error that also indirectly produces automobile fatalities?
CBRE’s Rey Greenwood put AVs in broad real estate context. There are 3 pre-conditions to the success of driverless cars: (1) safety, (2) latency (quick response), and (3) widespread adoption. AVs are being used in business right now: self-driving trucks already are operating in the Australian outback in the mining industry.
Greenwood also emphasized that reducing the number of parking spaces required will free up 10-15% of the total square footage of a building to be put to profitable use. Parking easily adds 25% to the cost of development. Reducing parking will thus generally make real estate more affordable and more profitable—a substantial benefit to real estate developers and real estate users alike.
There was significant divergence among both panelists and audience participants on the phasing and sequencing of AVs in densely urbanized areas versus suburbs. Rossa suggested that AVs and mobility-as-a-service will be adopted first in dense urban areas but that the traditional cars-with-drivers system will persist in suburban areas for several decades, and that in Middle America people enjoy the driving experience in wide open spaces. Greenwood emphasized that, in freeing up commuters from the need to drive, AVs will enable commuters to work in the car, encouraging slightly longer commutes and possibly producing some additional suburban sprawl. Audience members partially reconciled these views by suggesting that AVs will initially have the most effect in suburban areas, but that over 20 to 30 years, as reducing parking frees up land in densely urbanized areas, the effects of AVs will become more pronounced there.
In the next 20 to 30 years, then, vehicles with drivers are going the way of the Edsel. Commercial real estate must begin planning—particularly long-term capital planning–for Autonomous Vehicles now. In Wes Guckert’s words, “Uber yourself before you get Kodaked.”
To listen to an audio recording of this, please click here.
David L. Winstead, Attorney, Ballard Spahr, LLP and Former Md. Transportation Secretary
Revathi Greenwood, Americas Head of Investment Research, CBRE Americas Research
Wes Guckert, CEO, The Traffic Group, Inc.
Brian Roosa, Executive Director, North America, General Motors
Recap Written by Chuck Schilke