Impacts of Autonomous and Driverless Cars on CRE

Fall 2016
The Mercedes-Benz F 015 Luxury in Motion research vehicle — envisioned as a “mobile living space” rather than merely a means of transport — is just one example of the autonomous cars now being developed by automakers.

Will tomorrow’s autonomous and driverless cars require some simple adjustments or be a game changer for commercial real estate?

IMAGINE A WORLD in which there are just too many cars. In some cities, that is already reality. While most people find themselves frustrated with traffic jams and congestion during rush hour periods, they seldom contemplate a world where congestion is a fact of life. But in the world’s largest metro areas, traditional transportation systems are breaking down, becoming almost unworkable. Can autonomous or driverless cars play a role in alleviating this resource drain?

There has already been much talk about autonomous cars, but it can be helpful to begin by defining some terms. The terms autonomous car and driverless car are often used interchangeably. The former is a traditional car with a driver that has evolved to the point where the driver need not take the wheel. Sensors and vehicle guidance systems allow the vehicle to go to the next step beyond automated speed, braking, parking and lane changing. But the driver is presumed to remain at the wheel and be able to take control if necessary. A driverless car, on the other hand, goes one step further. It may not have a steering wheel at all; it simply takes passengers where they want to go, without any need for a driver.

The autonomous car is a refinement of the traditional automobile; it will probably be owned and used much like the cars on the road today, although it will feature very advanced technology that will allow it to undertake most driving tasks without intervention by the driver. But the driverless car will be a game changer. The vehicle will essentially be a robot that comes to you on command through a phone app or some other means, and will do what you want it to do, perhaps taking others where they want to go along the way. The reason it is a game changer is that the autonomous car will still be parked in your driveway; the driverless car will not. The former might actually increase demand for cars; the latter is likely to reduce that demand. The latter comes with a greater acceptance of the shared model and the move away from the concept of the automobile as a personal possession.

From Evolution to Revolution

The automobile industry — including automakers like Volvo, Mercedes-Benz, Volkswagen/Audi, Tesla and BMW — is already moving down the path of enhancing the traditional automobile experience by making the driver’s role less important. The vision is that your car will take you where you want to go, and along the way you will be able to do other things without worrying about maneuvering the vehicle. It is interesting to note that this scenario will not reduce congestion; it will just make it more bearable, as well as more productive, for the commuter. And it does not reduce the number of cars on the road. It may even increase the number of cars on the road and the amount of vehicle miles travelled, because more people might be more willing to commute longer distances. Despite the recent fatal accident involving a driver using Tesla’s Autopilot system, the industry will continue down this path. Technology will ultimately trump driver error.

David Dale-Johnson

David Dale-Johnson

Uber, Didi Chuxing (China’s ride-sharing and taxi-hailing company) and others have a different vision. That vision is further along the continuum described by Johana Bhuiyan in “The Complete Timeline to Self-Driving Cars” (Recode, May 16, 2016). Around 2030, the evolutionary (autonomous) and revolutionary (self-driving) car paths are expected to converge. Along the way, less than 10 years from now, the automobile industry will experience a crisis, as the automobile as we know it becomes a plaything for the wealthy or the automotive enthusiast. People may still own SUVs for weekend use in rural areas, and racetracks will become more popular as places for Ferrari-owning hobbyists to drive. The real change will occur when the shared model merges with autonomous cars. Driverless and autonomous cars can coexist with traditional cars on existing roads and highways, but insurance and maintenance of traditional cars will become more expensive. Eventually, it may become too inconvenient for most people to drive a traditional car or even an autonomous car.

Disruption of the automobile industry will occur as car sharing merges with the technology of driverless cars. This means that, for the average person, it will no longer make sense to own a car. A number of studies suggest that the average car is parked 95 percent of the time. That means that the capital tied up in the vehicle and in the real estate it occupies is unproductive 95 percent of the time. Even now, as reported in USA Today and other publications, fewer millennials are purchasing automobiles, choosing instead to use ride-hailing and car-sharing services, travel by transit or simply live within walking or biking distance of their workplaces. But the driverless car revolution will enable the entire community’s transportation needs to be handled by a fleet of cars perpetually in action.

Some unanswered questions remain. In this scenario, who owns the vehicles: Uber? Didi? Or maybe Lyft, which has teamed up with General Motors Co. in the automaker’s first foray into the shared economy?

The Impacts on CRE

What does this mean for the shape of the world’s cities and real estate markets? Imagine a fleet of driverless vehicles that operates 24/7, picking you and your neighbors up for the commute to work or dropping you off and picking you up from your weekend shopping trip. All of this will be facilitated by an app that allows you to choose your mode of transportation, the pick-up point and the destination. And there will be no wheel to take.

This will result in fewer automobiles on the streets, which should mean less congestion and more room for surface light rail or self-driving jitneys like Olli, IBM’s 3-D-printed collaboration with Local Motors, as well as more urban green space and wider sidewalks. With a more palatable commute, more people may choose to live in the suburbs. But less congestion will also facilitate greater urban density. The result will be new congestion, with driverless cars the culprit. So rapid transit will remain part of the urban transportation mix.

Parking stalls in apartment and condominium properties will be operated by storage companies as they evolve into storage facilities for renters and owners — not simply as storage for cars, but for the occasional car as well as household goods that used to be kept at a local self-storage facility. Perhaps existing storage facilities could be converted or torn down and their sites redeveloped as new residential or office space. Above-ground parking structures should offer redevelopment opportunities. Some parking structures will likely be recycled into operation centers for fleets of driverless vehicles, where they can undergo periodic maintenance and park during less busy times of day.

Parking lots at shopping centers will be redeveloped into residential, mixed-use or additional retail space, enabling well-located centers to grow their retail footprints as well as increase residential density. Residents will be less concerned about new density as the traffic impact will be minimized and congestion will be greatly reduced if not eliminated.

Many other changes will take place. Car insurance will become a business-to-business activity. The automotive industry — including manufacturing, sales, servicing, finance, the after-market (used cars) and rental companies — will need to reboot in a much more dramatic way than the hotel industry’s adjustment to Airbnb. Smaller and rural communities will adopt the technology less rapidly, perhaps evolving into weekend escape locations for city dwellers unwilling to give up the driving experience.

Many of the changes described above are uncertain, but the revolution resulting from driverless technology is coming soon. Commercial real estate professionals and everyone else involved in city building must begin to consider the possible implications of this revolution in their decision making now.