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4 ways self-driving cars could revolutionize CRE

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It may take five years or fifty depending on who you ask, but there’s great potential for autonomous vehicles to radically disrupt and revolutionize the commercial real estate industry.

The relationship between property values and transportation is one of the most durable in human history. The first cities grew up along waterways, railways, and roads. Then Henry Ford’s Model T paved the way for the suburbs. Tomorrow, driverless cars could usher in a similarly monumental shift in how we use real estate.

Yet from Uber’s fatal driverless crash to an uncertain regulatory future, these changes are not set in stone. Autonomous vehicles still have a long way to go, and most experts predict widespread consumer adoption is at least a decade away.

Despite the setbacks, technological advances and growing levels of investment make the driverless future more and more likely. From opening periphery neighborhoods to revolutionizing retail, here are four ways autonomous vehicles could rewrite the laws of commercial real estate.

1. Periphery neighborhoods become more accessible

Offices, retail, and multifamily developments are valued largely for their location and proximity to public transit hubs. But if autonomous vehicles become an everyday reality, commutes will become less stressful and traffic will flow more efficiently.

Experts predict this could eventually cut urban traffic by up to 90% and encourage a new era of urban sprawl as outlying areas become more attractive for development. If that happens, CRE markets can expect serious changes.

If everything within an urban area becomes little more than a 30-minute hands free “drive” away, currently undesirable areas could become more valuable as location becomes less of a determining factor. At the same time, traditionally well-positioned properties could devalue as the importance of location and proximity to key transit hubs fades.

2. Relocated industrial demand

Autonomous vehicles promise to impact industrial real estate markets in a similar way. Except this time the changes are easier to predict.

CBRE said driverless trucks could fuel demand for remote warehouses currently out of reach of major markets. The reason has to do with U.S. federal regulations. Current regulations limit truck drivers to 70 hours of driving per week, forcing warehouses to be within a few hours drive of the markets they serve.

But autonomous vehicles would have no such restrictions, robots don’t get tired after all, so currently out-of-reach locations will become fair game for tomorrow’s big-box warehouses. This dynamic is expected to shift demand across the industrial sector, prompting e-commerce operators and logistics companies to focus on warehouses in cheaper locations outside the regulatory driving limits.

CBRE also said driverless trucks will ultimately speed up e-commerce’s breakneck growth by lowering the costs of delivery. Driver wages account for 33% of total trucking costs, but autonomous vehicles will be significantly cheaper to operate. Once the technology is ready driverless vehicles will reduce trucking costs and give online sellers more room to invest in operations.

3. Parking space repurposed

Parking centers consume an enormous amount of space. A Gensler report said America’s parking footprint totals some 500 million parking spaces and covers a land mass larger than Delaware and Rhode Island combined. In New York City, parking lots consume space equal to two Central Parks.

Yet in the U.S. the average privately owned car is in use just 5% of the time. The rest of the time it’s sitting in a parking lot. Imagine how much space could be repurposed if just a minority of people swapped their idle cars for a self-driving car service.

McKinsey & Co. attempted an answer, predicting self-driving cars could reduce the demand for parking space by over 61 billion square feet in the U.S. alone.

That’s because automated vehicles are expected to behave like taxis, picking people up and dropping them off without ever needing a place to park. If the cars eventually do take a break, operators are likely to ignore most downtown parking lots and park their fleets in massive, cheaper lots outside city centers.

Any future decrease or reconfiguration of parking space demand has the potential to impact CRE. A massive drop in demand would lower costs for owners, who would no longer need to provide parking, while freeing up space for more relevant investments. Today’s garages could also be redeveloped into other forms of real estate, adding massive amounts of new inventory to saturated markets.

Over the long-term this could reshape established supply and demand norms as billions of square feet of parking space get redeveloped to fit modern needs.

4. Retail revolutionized

While any drastic changes in parking needs would impact all CRE sectors, retail has the most to gain.

Top mall owners like Simon Property Group and Macerich dedicate half their real estate to parking. Many retail owners are in a similar position, but if driverless cars decimate the demand for parking space, retail owners could turn those lots into distribution centers to aggressively integrate their e-commerce operations.

Not only would doing so help the retail industry evolve, it would also give them the opportunity to integrate last mile deliveries into their supply chain. Combine that with driverless trucks and it might be just what the retail sector needs to fight back against Amazon.

Autonomous vehicles are years away from reaching their full potential. And while there are many unknown variables that will either help or hurt their development, the CRE landscape is already prepping for a driverless future. So whether it’s rethinking the value of periphery neighborhoods or planning how to repurpose parking space, tomorrow’s top CRE professionals will be the ones who get ahead of this trend today.