Bisnow Special Report: The Future Intersection Of Driverless Cars And CRE

Bobby "Blackwolf" Tamburrino remembers the day well. It was in mid-October last year when Tesla sent out a software update that would finally allow his Model S 70D to drive along the highway without his hands on the wheel, a feature called “lane assist.”

It's that kind of user adoption that could change the very face of American society in the not-too-distant future—and with it, the way developers and property owners will have to cater to a new dawn of the autonomous vehicle.

To say what the exact impact driverless vehicles will have on society is a study in futurism. To say what effect that will have on commercial real estate may just take Nostradamus. But to say that a world filled with autonomous vehicles is just a far-fetched fantasy is not looking at the facts.

Companies are pouring untold millions into research and investment—high-profile names like Audi, Apple, Nissan, Tesla, Ford, Jaguar, Microsoft and chip maker Nvidia have already spent $450M this year, on pace to eclipse the more than $470M spent in 2015 and the $400M spent in 2013, according to CB Insights.

That's before considering $4B the Obama administration recently proposed putting into autonomous vehicle research funding. Those kind of dollars overshadow the money being spent on the other fad tech making headlines: drones.

“When you look at the Fortune 100, they’re making a bigger investment in driveless car than drones – Amazon is the exception,” says HFF's Ben Sayles, who recently waxed philosophic on driverless technology in this paper. “So you're just getting massive amounts of private investment in addition – likely to be well in excess of whatever might be coming from the Federal government."

Real estate analytics firm RCLCO recently issued a report on driverless cars and their impact on real estate. In it, analysts predict autonomous vehicles will have a sweeping influence on all facets of real estate, starting with industrial (as autonomous vehicles are used for last-mile same-day delivery of products) and eventually leading to retail, office and even residential real estate by 2040, when researchers believe automated vehicles will be ubiquitous on American roadways.

Jim Carroll, a noted futurist who has spoken to a number of automotive companies as well as such organizations as NASA and the PGA, says autonomous vehicles will have the same economic impact railways did in the 19th century and highways did in the 20th century. And those cities that quickly adopt and build “intelligent infrastructure” to accommodate driverless technology will be the ones to thrive in this new world.

“Towns withered and died on whether they were on the mainline of a railroad,” Jim says. The same went for highways: Cities that were connected directly by major interstates thrived.

And now cities are facing a similar paradigm shift, “and really that becomes an economic decision," Jim continues. "Do we want to be a community that wants to be on the forefront of this shared technology...or are we going to sit back and wait? It's going to be a big economic development driver.”

Real Estate's Biggest Casualty: The Parking Lot

If there is to be one single biggest change to commercial real estate as a result of mass adoption of self-driving cars, many experts say it will be parking lots. With autonomous cars, experts predict, the need to have a lot to stow fleets of vehicles driven by consumers will diminish.

In an ideal scenario, vehicles would be roving around until hailed by a person in a sort of Jetsons world of self-driving taxis. Or, if it's a personal car, the vehicle could return home until hailed again, or parked in a central location.

Either way, Steinberg principal Simon Ha says, there's going to be far less need for oceans of asphalt with white lines. And that will alter the nature of commercial developments.

“We used to have a saying, 'Form follows function,'” Simon says (referring to the famous modern architect creed coined by Louis Sullivan). “I rephrase that to say form follows parking.”

Today, and for much of modern CRE history, the size and density of a project hinged on how many parking spots it needed to accommodate the bodies. The bigger the building, the more parking it requires. That formula has become even more of a drawback in the age of mixed-use.

"The cost of parking and the land area you need to accommodate parking really became the driver in the mixed-use design," Simon says.

The answer may well be no parking requirements in an autonomous vehicle world, says Jonathan Levine, the Emil Lorch collegiate professor of architecture and urban planning at the University of Michigan's Taubman College of Architecture and Urban Planning.

“What parking requirements tend to do [is] make it more expensive to live in higher-density areas because you have to buy parking bundled with your housing,” Jonathan says. That thwarts both smart development and a city's ability to achieve a critical mass needed for an automated car system's success.

Instead, governments and policymakers have to be trained to realize the best solution may often be for the developer to decide for him or herself. “We should say to the developer, 'You know, you figure out how much parking to provide.”

Simon, who is a Los Angeles zoning advisory committee member, says the city is examining this issue now and is considering a zero minimum parking ordinance: basically allowing some developments to rise with no parking whatsoever.

That thinking is a sea change among officials. And it could mean a sudden surge in available land in major cities, considering by some estimates as much as 25% of an urban center is either deck or surface parking.

“It really changes the nature of a development” if the builder is no longer hamstrung by parking, Simon says.

Even parking decks today could see redevelopment within a century. “Structured parking doesn't last forever,” Jonathan quips. And removing those monoliths from major cities could create “even more face-to-face interaction,” he says.

Ch-Ch-Ch-Changes

CRE investment advisory firm National Real Estate Advisors attempted to prophesize other major changes to real estate as a result of mass autonomous vehicle use in a January paper. Among those changes:

• An explosion in bike lanes and urban greenspace.
• Job losses in office buildings using industries like auto insurers and brokers. As the number of accidents is reduced as human error is removed from the equation, “the consequential drop in insurance premiums and profits could lead to widespread job cuts and the need for less office space,” NREA CEO Jeffrey Kanne writes.
• Data centers and creative office space will flourish.
• Many of the US's125,000 corner gas station/convenience stores could become obsolete, opening even more prime real estate to redevelopment.
• While transit-oriented development demand will increase in the near term, the long-term impact of driverless vehicles could be a boon to the suburbs. 

“While driverless cars may make urban life more attractive, long-distance commutes from the suburbs also could become more feasible because of faster drive times and more efficient use of time in the car,” Jeffrey writes. “In the past, as transportation became cheaper and more convenient, people moved farther away. Tomorrow’s 100-mile commute with cars traveling mere inches apart could take as long as today’s 25-mile trip, with far less stress and greater productivity.”

That can boost not just real estate changes, but true economic advantages, says Cushman & Wakefield's Robert Sammons, who has spent some time exploring the possible effects of driverless tech. Safer roads and less congestion will have a real economic impact.

With people commuting to work without actually having to drive, suddenly they have more time to work on work, increasing productivity and even boosting the gross domestic product of the US.

“It is very science fiction-y, right?" Robert says. "But I think it's going to be the new reality in a decade or so.”

Real World Assimilation

There are a number of real-world adaptations taking place to anticipate the driverless revolution. Nevada, for instance, has already passed legislation to license autonomous vehicle testing. Uber will be delivering a fleet of self-driving Volvo taxis to Pittsburgh this month. And Faraday Future—a Tesla competitor—is planning driverless vehicle tests on Michigan streets this year.

The University of Michigan even built a simulated city, Mcity Test Facility (here), a 32-acre plot in its North Campus Research Complex that has roads, intersections, traffic signs and signals, sidewalks, fake buildings, street lights and other obstacles to help test driverless vehicle safety. Most recently Ford Motor Co tested its autonomous vehicles there.

Audi is even getting into the game, operating various tests in suburban Boston, especially its intelligent parking management system at Federal Realty Investment Trust's Assembly Row mixed-use project. Federal Realty's Chris Weilminster (here) tells us the two parties are still hashing out details on how this will work, but it would involve a system of autonomous vehicles dropping off pedestrians and then parking on their own in a self-parking garage.

“What at least Audi is talking about...is something much bigger than pulling in a garage and then the car just self-parks,” Chris says. 

If self-parking cars becomes the norm, Chris says it opens up a whole world of capital for developers to focus on other aspects of a project than just parking decks or surface lots. “You can spend more capital on delivering better public space.”

Red Pill or Blue Pill

So, when will all of this come about? Predictions are scattered, but many believe by 2040, autonomous vehicles will be a common sight in the Western world as software and real-time data create precise, convenient and widely available travel conditions. But the University of Michigan's Jonathan says there are two paths this adoption can travel down, one that leads to transportation Nirvana, and another a cluttered hell.

The good path is based on a shared economy where car ownership is no longer the predominant preference. Instead, what you will have are fleets of driverless vehicles (such as the taxis in the 1990 sci-fi Arnold Schwarzenegger action flick Total Recall) ready at the beck and call of commuters, Jonathan says.

In this world, “we've created on-the-fly transit with a high level of service.” That not only impacts congestion on the roads, but also the environment as emissions are greatly reduced, dropping the use of excessive greenhouse gases. Ultimately, that would make even dense urban centers more appealing—and affordable—to the average worker, Jonathan says.

The bad scenario would see congestion unaffected, and a world in which everyone has a driverless car in their garage. And because you can just do whatever while the car drives, the average American will spend more time on the roads. That, in the end, would be not only an economic conundrum, but also an environmental disaster, even if cars are electric. That extra electricity has to come from somewhere, and mostly that's coal-fired plants, working overtime to feed demand.

But is a transportation Nirvana, built on the idea of sharing vehicles, possible in a country built upon the love affair with owning a car since the turn of the 20th century?

In the car-starved city of LA, Simon says he's seeing a shift among Millennials and younger generations away from vehicle ownership, toward the acceptance of a shared economy. He's even noticed his driving habits change since the onset of Lyft and Uber.

“I drive my car once a week,” he says. “Otherwise, my car sits in the garage.” And that's a growing attitude in LA. “For a lot of people who have the luxury of owning a car, they may opt to own a car. But there's a big demographic where owning a car and having insurance and having a license is a big burden on their pocket.”

Chris is a little more circumspect in his views on autonomous vehicles, and concedes that mass adoption will likely be a generational preference.

“Would I right now feel that comfortable? Probably not," he says. "But will my grandchild? That's probably the only way he'll be thinking about driving.”

Our Tesla owner who has already toyed with his car's driverless feature also was skeptical about a future where this was the norm. “For that to work, every car has to be a self-driving car. You have to eliminate human error,” Bobby, who is a software developer and an active vlogger who has aired personal stories about driving in his Tesla, says.

It's not that he doesn't trust the software—he trusts it enough to let it drive from Orlando to Washington, DC, recently. It's other human drivers that scare him.

“I would never watch a movie with it on or anything like that,” he says. “But I do trust it as a tool to make me a better driver.”