In a recent webinar hosted by Urban Land Institute (ULI) in conjunction with Green Street Advisors, a prediction about the driverless car revolution was made, stating that by 2030 automotive manufacturers will ONLY produce driverless cars. The reality of the driverless car revolution is nearer than we think and the change this new technology will bring to the built environment and commercial real estate specifically, cannot be underestimated.
Understanding the potential of the future impact of the driverless car revolution will help investors, developers, landlords and tenants understand how it will impact their bottom line in the next 12 years and beyond. Knowing that generally, two-thirds of the value of a commercial real estate product type comes from the long-term value of the building, considering future trends is important when making decisions about commercial real estate.
In response to the conversation with ULI and Green Street Advisors, the team at Colliers International | Minneapolis- St. Paul have broken down those that will likely “win” and those that may “lose” if driverless cars disrupt the current consumer driven automobile landscape.
There is 38 billion square feet of single family garage space in the US. If less than a quarter of the total number of cars in the US are removed from use, that could potentially free up 10+ billion square feet of “storage space” inside people’s owned property. This newly found space could drastically reduce the need for self-storage facilities.
The Road Ahead: When making decisions about commercial real estate, look to how the driverless car could change the need for off-site storage facilities.
2. Discount Retail
The driverless car revolution may dramatically decrease the way consumers “run errands.” Alongside the increasing ease and efficiency of e-commerce and evolution of near-instant automated deliveries, which have already reduced the need for errand running, driverless cars will be able to pick up and drop of customers at strip malls, discount bulk or pad site retailers. Because of the pick-up/drop off aspect of the driverless car, huge parking lots that were once a necessity for customers at this type of retailer, will likely become a detriment due to the lack of walkability.
The Road Ahead: When considering retail commercial real estate, keep an eye on how future strip malls, discount bulk and pad site retailers are built with a focus on how current structures can transform or be constructed with “district retailing” in mind.
3. Transit Oriented Assets
If ride sharing and driverless cars become a more efficient and popular transit mode, this could reduce premium rents for multifamily or office complexes located within close proximity to mass transit. Because driverless cars will most likely make commutes faster and more efficient, the high demand for location, location, location will no longer be part of the conversation.
The Road Ahead: When evaluating commercial real estate, keep in mind that the driverless car could impact the overall valuation of a transit oriented asset and look to the future possibility of devaluation, when making real estate decisions.
4. Parking Lot Owners/Developers
If there are no cars that park, why would you need a parking lot? Older parking lot structures, especially those located underground, are at risk of becoming obsolete if driverless cars become the preferred mode of transportation for commuters. This reality could make an underground parking lot an economic drag on an otherwise profitable building.
The Road Ahead: When calculating commercial real estate decisions, take into account how to build new and renovate current parking structures with an eye to future conversion.
5. Automotive Retail and Maintenance
Imagine if automotive ownership went from individual to fleet owned vehicles - this would mean that the need for maintenance, repair, dealerships and retail automotive on the consumer level would rapidly deteriorate. Think Amazon meets Uber; one would pay a membership fee that would allow a certain number of rides, in a given time period, for a monthly or annual rate. This would make the fleet owner, “the Amazon + Uber hybrid,” responsible for; gasoline, car insurance, maintenance & repair and any other automotive needs.
The Road Ahead: When considering automotive commercial real estate, keep in mind that the driverless car could impact the face of the automotive industry as we know it. For example, if people are not owning cars as property, but paying to use them as a service, the entire structure of the dealership, repair shop, insurance and retail could potentially be reshaped.
1. Centrally Located Office Product
The driverless car is predicted to dramatically reduce commute times for users and it is hypothesized that as commute efficiencies increase and parking becomes less relevant or potentially disappears altogether, companies will opt to move to the central business districts. This urbanization will be largely due to the walkability factor and the overall ease of doing business in city centers.
The Road Ahead: When analyzing commercial real estate decisions, be aware of how the driverless car could re-urbanize central business districts and consider how development in these centers can support this mass migration of companies into urban centers; snatching up parking lots now and building class A office space instead, might not be a bad idea.
2. District Retailers
Dense, walkable, experiential and atmospheric retailing, that may have suffered in the past due to lack of parking, will see an increase in desirability and attendance, as pick up-drop offs from driverless cars become more common. There could be a revitalization and rebirth of the “main street” as a result of the driverless car revolution.
The Road Ahead: When looking to the future of retail commercial real estate, consider designing future retail centers with walkability as the priority and working to re-envision how current structures can support the growth of experiential, district retail centers or “main streets.”
3. Suburban Housing
The driverless car could have an impact on the location of multi-family and single-family homes with the possibility of incremental suburbanization becoming more common. As driverless cars decrease commute times it will make it easier for people to move further out into the suburbs, while still maintaining the “Marchetti’s Constant.” Italian physicist Cesar Marchetti, explains this “constant” by stating that, “Although forms of urban planning and transport may change, people gradually adjust their lives to their conditions, including location of their homes relative to their workplace, such that the average travel time stays approximately constant- 30-minute commute both ways.”
The Road Ahead: When reviewing the housing sector of the commercial real estate industry it would be wise to consider how the driverless car could have an impact on continued suburban sprawl into 3rd or 4th ring suburbs.
Senior Research Analyst
Colliers International | Minneapolis - St. Paul
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