OP-ED: Potential Impacts of Autonomous Vehicles on Real Estate
Over the last few years, autonomous vehicles (AVs) have gone from science fiction to near reality. Already, prototype vehicles zip through cities like Pittsburgh and Miami; autonomous trucks travel long haul routes in multiple Western states and deliver freight in Atlanta. Industry experts expect that Level 4 AVs (which require driver participation under certain traffic or weather conditions) will be incorporated into mobility fleets within the next few years, and will be available to consumers as private automobiles by the mid-2020s. Level 5 vehicles, requiring no driver involvement at all, may become a reality only a few years later. The Boston Consulting Group predicts that by 2035, one in ten cars on the road will be a fully autonomous vehicle and an additional fifteen percent will be partially autonomous.
AV technology is certain to disrupt and transform the real estate industry—just as the steamboat, steam engine, electric streetcar, and automobile have done in the past. In particular, AVs are expected to free up vast swaths of land previously dedicated to parking or other automobile dependent uses for development, and at least some existing parking garages could be converted to rentable square footage, storage, or other income-producing uses. (The parking spaces in the United States would occupy an area roughly three times the size of Rhode Island.) And construction costs may dramatically decrease due to reduced or eliminated parking needs and lower distribution costs for materials delivered by AVs.
AVs are also likely to drive demand for certain asset types and make some property more valuable. For example, data centers, both traditional large scale facilities and smaller “edge” facilities, will be necessary to process the incredible amounts of data generated by AVs—by Intel’s estimate, each AV will generate an amount of data equivalent to that used by 3,000 people.2 Companies like Amazon and Walmart will rely on fulfillment centers near population centers to make speedy deliveries using AVs. Living and working in outer suburbs may become more desirable, and land values in such areas may increase, if AVs make commutes shorter or more comfortable.
But it’s not all upside potential. In particular, the uncertain future of the AV industry will make it difficult for the real estate industry to proactively adapt. Currently, AVs are being developed both by traditional automotive companies, which generally anticipate some level of private car ownership, and companies like Uber that envision a future in which vehicles are shared. Most current projections regarding land value, impacts on particular asset types, and construction costs assume that AVs will be largely shared. Owners, developers, and lenders should, at this point in the development of AV technology, watch the AV industry closely to see if this assumption is correct, and where possible maintain flexibility in how property is developed and managed. It is also uncertain how, and when, AVs will change consumer preferences with respect to real estate. Because AVs are expected to make road travel more efficient, more convenient, and more comfortable, both the premium placed on conveniently located property and the penalty associated with inconvenient location will likely diminish. But to what extent will that be true, and how long will it take for AVs to influence our transportation decision making? Historically, there has been a consistent premium associated with a commute of an hour or less. Will that hold true for AV commutes? And will urban areas continue to be desirable for living, working, and entertainment, or will we see a resurgence of interest in suburban locations?
Finally, certain industries may suffer as the AV industry takes off: traditional car companies, at least those that are unable to keep pace with their tech-company rivals; car-focused retail like strip malls; hotels and restaurants catering to freeway travelers. The future of automobile insurance companies, automobile dealerships, and gas stations is also unclear. The unknown economic impact of these industry shifts and the replacement of professional drivers with AVs create additional uncertainty.
Now is the time for the real estate industry to start considering the impact that AVs will have on the real estate landscape—and to start participating in the broader conversation with planners, government, technology and automotive companies, and other stakeholders regarding AV technology.
Column first appeared in the Daily Journal of Commerce on March 19, 2018.