By Chris Rising
Advancements in technology continue to reshape the world we live in at an unparalleled pace. At Rising, we embrace change and leverage technology to develop and provide better real estate services as a result. One technological advancement we are watching in particular is how artificial intelligence will affect the “single occupant” car culture in areas where we invest. The “autonomous vehicle” is quickly becoming reality. Companies like Google and Tesla may have technological and jurisdictional challenges to overcome, but the past few years has shown a marked acceleration of investment by every major automobile manufacturer. The impact of autonomous vehicles will be felt in our society. It becomes quickly evident the commercial real estate sector will be greatly affected when the single occupant vehicle is no longer the primary mode of transportation to and from the workplace. We’ve identified several potential impacts:
- Positive impacts on the economy due to reduced traffic
According to the U.S. Census Bureau, it takes the average worker 25 minutes to travel to work. A major selling point for autonomous cars is the potential to reduce commute times by reducing traffic congestion through efficient coordination with artificial intelligence (AI) operating vehicles. By automating communication between cars and no longer relying on inconsistent human behavior to do things like signal before a lane change or merge with oncoming traffic, this technology will minimize the primary causes of traffic and road congestion by allowing more cars to occupy the same space. The math is simple: A highway lane is 12 feet wide. The average American car is about 6 feet wide. You can fit twice the cars in the same space, or from a land developer perspective, the same cars in 1/2 the space. This assumes following distances do not change. The largest variable in stopping distance on dry pavement is human reaction time. Self-driving cars can drive within inches of each other, further multiplying the capacity of our current system of roads.
- Geographic Location
With autonomous vehicles and reduced traffic, commute times will become more predictable. This certainty gives workers more freedom to choose where they want to live. If someone wants to live in Malibu but has to commute to DTLA, she could do so not deterred by traffic unpredictability.
- An immediate impact to asset value
In our experience, net revenue from parking for a typical office building in Southern California can yield approximately $3 to $5 per square foot annually, which can represent 15-20% of the property's net operating income. Should parking demand completely disappear, this could result in approximately $70 per square foot of lost value, which is roughly the replacement cost for a parking structure. Landlords and parking operators will likely lower parking fees in an effort to keep garages full and net parking incomes high. Alternatively, landlords may find more value in repurposing parking garages into storage facilities or other minimal-build-out spaces.
- Change in cost per employee
As autonomous vehicles become a primary mode of transportation, employers may choose to subsidize key employee's autonomous vehicle transportation costs as opposed to parking costs – which we believe will be a more cost effective option. Additionally, many employees who pay their own parking expenses will have a cost-saving option and an alternative to public transportation.
- Increased productivity
It goes without saying that autonomous vehicles will give people the opportunity to spend less time focusing on driving and more time on productive tasks – like reading and researching, getting ahead of deadlines, or taking calls while not risking “driving distracted.” This will result in a organic extension of work hours, boosting productivity. According to research done on the 'Economic Effects of Automated Vehicles' at University of Texas, “Autonomous vehicles could save over 2.7 billion unproductive hours in work commutes, generating an annual savings of $447.1 billion per year in the U.S. alone (assuming 90% CAV penetration). This time savings estimate, combined with $488 billion from collision costs amounts to total savings of $1.1 trillion in the U.S., or 8% of the U.S. GDP, and as much as $5.6 trillion worldwide.”
- More opportunities to develop affordable housing and other revenue streams
Current land use codes encourage car dependency. The codes hinder developers from building affordable housing and office space, while also demanding a large portion of development resources dedicated to parking. For instance, developing multi-family housing today, land use codes require a parking spot for one full size car per unit. With autonomous vehicles and the decreased need for parking, developers will no longer have to allot so much space to parking for every project. Some cities, such as Seattle, are already getting rid of these rules, allowing developers to build less parking if the development is near public transit (Source).
Commercial real estate owners and developers with ample parking spaces should not be discouraged by autonomous vehicles. We must think about ways to mitigate decreased parking demand risk. Here are some opportunities Rising has identified:
- Repurposing the parking garages/lots
This may require zoning or conditional use changes but will dramatically improve development possibilities.
- Partner with autonomous fleet operators
Autonomous fleet operators need “bases” to recharge, clean and service their vehicles. Developers must be conscious of this and plan accordingly.
- Provide tenant shuttles
With fewer people driving their own cars to work, developers can provide complimentary tenant shuttles to get around the neighborhood.
- Pursue under-parked assets
As an acquisition strategy, acquire under-parked assets and not ascribe intrinsic value to an asset because of its above market parking ratio. Previous acquisition strategies viewed healthy parking ratios (i.e. 4/1,000) as a very attractive amenity that drives tenant demand. As parking demand decreases, our assets will become less reliant on parking ratios which gives us a much broader spectrum of properties we're looking to acquire.