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May, 2017
The ‘driverless’ car’s impact on real estate
When you talk about “driverless” cars, images of Knight Rider’s KITT car or scenes from the science fiction film “Minority Report” may come to mind. While it’s hard to wrap your head around the idea of getting into a vehicle without a driver, significant public discussion and substantial private investments are accelerating such technologies.
Business Insider published a report in October 2016 that reviewed 19 major companies claiming to put self-driving cars on the road by 2021. That might seem much further off in the future, but the reality is that that is only four years from now.
The reality is that these new autonomous vehicles will likely drive massive disruption, forcing real estate investors and developers to re-examine their strategies.
For example, Houston’s central business district comprises 65% streets and surface parking, with only 35% for buildings and parks.
Even in Washington, DC, which has a sizable mass transit system, streets and parking take up 45% of the downtown central business district, and vehicles can occupy substantial space within buildings — upward of 30%.
It’s hoped that driverless vehicles will reduce the need for car-related space, relieve congestion, reduce fuel use and lower the number of accidents. The likely advent of these vehicles means real estate owners and investors should start paying attention now. But how will driverless cars affect real estate usage and values?
The Need for Parking Spaces Will Drop
A lot of discussion is going on as to whether the need for parking will drop, increase or stay the same. Experts and analysts are weighing in on this issue.
Deloitte’s Leader of Global and U.S. Real Estate, Bob O’Brien, told Law360 that investors are already planning for a time when large parking garages are simply not needed. And a report by Green Street Advisors, a California-based research firm, estimates that a decline in vehicle ownership could cut U.S. parking needs in half within 30 years. That would eliminate 75 billion square feet of parking space.
To put it in perspective, this is more than the combined area of all apartment, office, shopping mall, retail strip center and warehouse buildings in the country today. That’s a lot of land to potentially repurpose!
What does that mean? It means that values of parking garages and all parking lots will plummet. It also appears that some above-ground parking garage structures will be repurposed, but many will become obsolete because of floor-to-floor dimensions.
Parking components for high-rise apartment buildings — which comprise as much as 15% to 20% of construction costs — will likely become unnecessary, or at least reduced. This reduction in cost will increase developer returns or allow for a reduction in rental costs by possibly as much as 30%.
Bike Lanes and Urban Green Space
If indeed private vehicle ownership will decline, then the need for road-side parking will decline, making more neighborhood streets twice as wide as needed. Parking lanes on streets could be converted to bicycle and scooter lanes. Some streets could be repurposed into green spaces, decreasing water runoff and heat buildup.
San Francisco, for example, already has programs that allow residents to repurpose street parking into mini public spaces or very small parks and patios called “parklets.” Converting a fraction of the city’s 280,000 parking spaces (which represents 40 million square feet) could result in significant changes in residential and retail markets there.
Prime Real Estate
Autonomous cars operating as fleets and maintained and refueled at central locations will make the new corner gas station and convenience store obsolete. It is expected in the future that privately owned autonomous cars will be programmed to refuel on their own. It has been noted that, as of 2012, the U.S. had more than 125,000 gas stations and convenience stores, many of which are sited on busy intersections and suitable for redevelopment.
Transit-Oriented Developments (TODs)The desirability of living close to mass transit may increase because people may be more willing to abandon their cars and depend on the ready availability of driverless cars, if they know they are able to conveniently move around on subways, light rail or buses.
We see this happening today with millennials in cities and urbanized areas. In Washington, DC, parking for new apartment facilities equals 0.33 spaces per unit. In Baltimore, the demand for parking is lessening to about 1 space per unit.
Asked why, major developers indicate that urban mobility companies such as Uber and Lyft have created a market that results in millennials not wanting or needing a car.
‘Robo Cars’ and Parking Spaces
About 30% to 60% of the cars driving around a downtown core are just circling, looking for open parking spaces. Worldwide, urban drivers spend an average of 20 minutes, per trip, looking for parking.
It’s expected that fleets of self-driving cars could scurry around picking up people and dropping them off, working in sleek robotic efficiency. They would pick up several people heading the same way, optimizing ride-sharing on the fly, just like Uber Pool and Lyft Line.
The U.S. Census Bureau reports that in 2005, 76% of U.S. workers, who lived in the same city where they worked and commuted to their jobs in a vehicle by themselves, only 7.8% of them did so using public transportation.
What Are Cities to Do?
While it seems there is still a disconnect between transportation planners and the push for driverless technology, city planners and local officials should begin planning now for this technology — before they find themselves looking in the rear view mirror. Being prepared ensures the successful future of individual cities.
Here are a few suggestions to aid in the planning process:
Encourage any new garages in your city be designed with 15-to-18-foot floor-to-ceiling clearances to enable reuse in the future. The need for parking will diminish as we continue to move deeper into an auto-sharing industry. Reuse of garages into higher density will provide another source of real estate tax revenue. (Deloitte’s O’Brien has even noticed that offices buildings with parking garages currently under construction are being built so that the garage has flat floors. The idea is that this space can easily be converted once driverless vehicles are mainstream.)
Allow developers to provide fewer parking spaces and allow the market to decide if parking is needed for new residential developments. Encourage parking that is unbundled.
Understand that the old standard of parking for retail centers (4.5-5 spaces/1,000 square feet) is no longer needed. Allow these centers to provide residential uses on the unused parking areas.
Be supportive of the private ride-sharing companies such as Uber, Lyft, Bridj, zTrip and others. Private transportation companies know how to survive and make money; therefore, allow them to freely use the current public transit stops.
Be prepared for how gas stations and convenience stores can be repurposed and the land rezoned as the U.S. moves to electric vehicles and hybrids, versus gasoline-powered autos. Determine the best use for those current land uses.
In Conclusion
Driverless vehicles are coming, and they will be here faster than we can imagine. There is no question that vast economic and cultural changes will arrive with them, and real estate is in its path and will be clearly impacted in many ways.
Smart investors, developers and transportation engineers should immediately begin analyzing their portfolios and setting goals for the future.
Wes Guckert is President and CEO of The Traffic Group. Contact him at wguckert@trafficgroup.com; visit the website www.trafficgroup.com; or follow him on Twitter @wes_guckert.
