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Patrick Spook, Eversheds Sutherland
Though it sounds like science fiction, autonomous, or driverless, vehicles (AVs) are closer to becoming a common sight than many realize. Despite technological and legal hurdles that need to be overcome, many believe AVs will be widely adopted within 20 years. From safer roadways to less stressed commutes and increased productivity, the potential benefits of AVs could be considered Utopian.
However, with our car-dependent society, how will AVs impact the way cities are designed and the way commercial real estate is developed? City planners will need to consider how to design roadways that cater to more-efficient vehicles, developers will need to account for decreased demand for parking, and the entire industry will need to contemplate how AVs may change the way real estate is valued. To realize the benefits of AVs, the real estate industry needs to carefully balance today’s needs with the needs of the future.
Thanks to the rapid rise of ride-sharing services (i.e., Uber and Lyft) and vehicle subscription programs (i.e., Zipcar), we are experiencing a shift in the way individuals approach car ownership. These available services make the economics of owning a car increasingly more difficult to justify. AVs have the ability to accelerate this trend as public transit capitalizes on these vehicles. Public transit authorities can increase ridership by tackling the “first-last mile” problem by implementing fleets of localized AVs to ferry passengers to the nearest transit station, thus decreasing the need for personal vehicle ownership. Additionally, since AVs will have the ability to “self-taxi” from user to user, there may be a shift in ownership patterns as families and groups of individuals create car-sharing networks that operate with one or two vehicles.
On average, vehicles are parked 95 percent of the time, driving a massive demand for parking; however, decreased car ownership resulting from the adoption of AVs will eventually lead to a decreased demand for parking. Additionally, since AVs can park themselves, transportation will become more of a door-to-door service, similar to what ride-sharing services offer. In this scenario, an AV will drop the user at his or her destination and will park itself in a decentralized location, freeing up valuable real estate in urban areas. By parking itself, there will be no need to open a car door once parked, thereby reducing the area needed for each parking space and decreasing the demand for space dedicated to parking. As parking demand decreases with the use of AVs, the real estate industry will need to adapt existing parking facilities into productive uses, while also planning current developments to comply with today’s parking requirements.
To address decreasing parking demand, developers should be proactive in developing adaptable parking decks. Some in the real estate industry have taken this step by constructing parking decks with level floors, exterior ramps and other technological features that will maximize the use of AVs. As AVs are widely adopted and the demand for parking decreases, adaptable features will permit the parking deck to be transformed into a more productive use, such as multifamily, office or retail space. Similarly, as surface parking lots become less relevant, these spaces can be utilized as parks or redeveloped into mixed-use space. Eventually, as parking demand decreases, developers will no longer need to account for large amounts of parking in project budgeting. Since parking spaces can increase the cost of construction by $25,000 to $40,000 per space, developers will be able to position capital into more productive uses.
In the grand scheme of things, the impact of AVs on parking may be minimal compared to the impact on other facets of real estate. AVs have the potential to fundamentally alter the way transportation infrastructure is deployed. A decrease in individual car ownership, combined with more efficient driving and specialized software that allows AVs to detect and adapt to real-time traffic patterns, may increase the capacity of our roadways by two to four times according to some studies. An increase in capacity will alleviate congestion, reduce the need to widen roadways, and may permit current roadways to be adapted by replacing under-utilized lanes with wider sidewalks, green spaces or bike lanes.
However, if not properly planned for, AVs can have the opposite effect on roadways. Since AVs may turn commuting into a door-to-door service, city planners and developers need to account for designated pick-up and drop-off locations in dense urban centers in order to prevent bottlenecks during peak traffic hours. Additionally, as AVs constantly shuttle themselves from user to user, there may be an increase in vehicle miles traveled and the number of vehicles on the roadways at any given time. Further, if not properly incentivized, AVs may actually encourage sprawl and decrease the use of public transit as commuting becomes less of a hassle and more of a time for productivity and leisure.
As transportation infrastructure is altered, and the way people get to places shifts, the location of prime real estate, and consequently the valuation of real estate, may also be affected. The direction in which AVs will steer transportation infrastructure is not yet clear, but the real estate industry should plan for all scenarios.
As the predicted timeline for deploying AVs shrinks every day, the time to think about AVs is rapidly becoming the time to plan for AVs. Just in May, Google announced that its self-driving car, Waymo, had surpassed 3 million miles of test driving on public roads. In September, General Motors announced a plan for mass production of an AV, joining major players such as Daimler, Tesla, Nissan, Volkswagen and Ford. With major technology firms and automakers signing on to the AV revolution, there is no slowing down the wheel of progress. The benefits of AVs are endless, but in order to realize the benefits and avoid disruption in commercial real estate, all parties should cohesively plan for a future without drivers behind the wheel.
Patrick W. Spook is an associate at Eversheds Sutherland in Atlanta. He advises investors, lenders, developers and timber investment management organizations in a wide range of commercial real estate matters.