Self-Driving Cars Will Transform the Real Estate Market
As of last week, autonomous vehicles — once confined to the realm of visionary technologists, industry prognostications, and eventually corporate tech R&D — have been legitimized and codified through official government law and policy. With the imminent mass commercialization of these vehicles will come a radical and permanent structural change to the way we interact with real estate — transforming how we live, how we work, commute, shop, and travel. AVs will alter the location, the value, and the shape of all real estate asset classes — perhaps to an even greater extent than the first automobiles once affected the market and spatial design of urban planning, architecture and our modern streetscapes nearly a century ago. At that time, cars permitted and in fact facilitated a mass migration to the suburbs and necessitated unprecedented public investment in the construction of infrastructure, particularly freeways. Investors with prescience made a fortune. Others, clinging tightly to outmoded transportation models, were driven to bankruptcy.
The shift to driverless cars may represent a sea-change in consumer behavior, but it in some ways represents only a stepwise change in vehicle design. Yet small disruptions in the way we use vehicles — ride sharing, for instance — has incredible potential to cause change far and wide. While ridesharing services Uber and Lyft are not deploying AVs in meaningful ways, research shows that every ridesharing vehicle put into use takes nine to 13 cars off the street, despite a relatively low overall penetration — to date, only about 15 percent of all adults have used a ridesharing service.
How much change to the Built World might we expect from autonomous vehicles? It’s estimated that self-driving vehicles could eventually cut urban automobile numbers by up to 90 percent. By its very nature, this is certain to catalyze a complete repurposing of the existing real estate landscape. And change will happen everywhere.
Consider the effect on retail and the way we shop. Demand for parking lots in the United States, in one example, could be cut in half over the next thirty years as a result of widespread AV adoption. This change, in isolation, would free up 75 billion square feet of space — put in context, more than the combined area of all office, apartment, shopping mall, strip mall and warehouse area in the nation today. Mall owners like Macerich [MAC] or Simon [SPG], half of whose real estate is dedicated to parking, could consider using this space for distribution centers for home delivery — such that they provide e-commerce businesses solve the last mile of the supply chain with cheap, driverless autonomous trucks. This would also provide incredible opportunities for experiential and high-end retail concepts, like prestige malls with entertainment options; however, commodity retail — strip malls, convenience stores, or drugstores — will almost certainly face disruption, as consumers switch into quicker, more convenient delivery and cheaper, disruptive shipping rates.
Car ownership — an iconic staple of U.S. American lifestyle — may also see major change as it becomes largely outmoded. Presented with the opportunity to rent a seat in a moving vehicle that cheaply, automatically, reliably, and individually delivers you to your destination, drivers across all socioeconomic strata will certainly begin to question the value proposition of owning a car and the expenses it entails. Lower vehicle ownership means fewer cars on the road, which means a drastic reduction in parking needs. As surface lots and garages exit the parking business, land for redevelopment will become available, creating huge new real estate opportunities. How huge? Almost one-quarter of U.S. cities are currently devoted to parking. This newly repurposable commercial real estate will see multiple effects as a result.
The impacts and knock-on effects for commuting are equally as staggering: where the average American commuter now spends 73 minutes per day in traffic, autonomous vehicles are certain to increase travel efficiency, decrease traffic itself, and make trips between home and work safer and less stressful by driving faster, closer together, and automatically re-calibrating routes based on congestion. This may cut delays by 60% or more, such that riders can spend more time working, safely sipping their coffee, or even sleeping as the form factors of AVs begin to change as well.
For the residential real estate market — from which the pool of commuters is necessarily drawn — this has unprecedented implications. In every decade since the invention of the automobile, the rate of suburban population growth outpaced urban growth, a trend facilitated and in fact largely driven by the mobility provided by cars. In no small part due to the surfeit of automobiles and the misery of rush hour commutes that they caused, in 2011 suburban flight was upended, and this flow reversed. AVs could stem the recent acceleration of migration into urban cores, largely driven by Millennials, as the pain and tedium of commuting is eased, while suburbs, which have fallen out of favor among these younger generations, could see a revival, causing home prices in outlying suburban areas to buoy while bringing untenable home values in San Francisco back to some modicum of normalcy and affordability. As smooth AV commutes reduce dependency on public transportation, transit-oriented assets could see rents flatten by 50 percent or more.
Self-storage will change as home garages are repurposed to home storage, causing the industry to slow and freeing up construction space among the 2.5 billion square feet — three times the size of Manhattan — currently dedicated to self-storage rental. Even travel and leisure will see structural shifts: as travelers opt out of motels on long routes, drivers may sleep in their cars, while weekend vacation real estate rises in value from convenience gains and reduced hassle of the 2–3 hour Friday afternoon commute out of town.
Are we there yet? No. Full-scale commercial adoption of AVs is still nearly a generation away. But smart real estate investors are redrawing their maps now to succeed in the inevitable driverless world. With the all-in political and legal institutionalization of AVs, all bets are off. The wheel is turning and the real estate landscape is reshaping yet again. Investors who get out ahead will win. Those who don’t will almost certainly become roadkill.