What a Beer Run Means to the Future of Real Estate

Early in the morning of Oct. 25th, a truck pulled out of the Anheuser-Busch facility in Loveland, Colorado with 2,000 cases of Budweiser. Nothing seemed unusual, but this trip was anything but routine. This trip was Uber’s first real traffic test of a fully self-driving truck. The truck would make its 120-mile journey through Denver without incident – and without a driver.

otto-truck

Just last September Uber deployed a fleet of autonomous cars on the streets of downtown Pittsburgh as part of their goal to eventually replace Uber’s 1.5 million drivers. We all know that Google has had self driving cars on the road for years. The Google cars have logged 2 million miles with a safety record far better than any flesh and blood driver.

But neither Uber nor Google wants to sell you a car. They have much bigger plans. They want to rent you a car by the trip, and they see self driving technology as a means to get you to car share. Car sharing is the goal.

It’s hard to say when you will take your first drive in an autonomous car. Many technical challenges remain. One of the reasons Uber selected Pittsburgh as their test city was because it has more than the occasional snowy day. Snow is the Achilles’ heel of autonomous vehicles since something as simple as a light layer of snow dramatically reduces the effectiveness of the car’s sensors.

Legal issues loom as well. An autonomous car can be programmed when faced with an unavoidable accident to impact with, say, the bicycle or the dump truck. In one instance the bicyclist is severely injured and the passenger in the autonomous vehicle is not. In the other instance the dump truck driver is unhurt but the automobile passenger is on the way to the hospital. Besides the moral conundrum, this presents a legal liability Catch-22 for any autonomous vehicle manufacturer. The developers of self driving cars have asked Congress to decide how the cars should the programmed.

There is no doubt that the technical and legal obstacles will eventually be resolved. There’s also little doubt that self driving cars will lead to an explosion in car sharing. One study by Barclay’s Bank predicts that the technology will cut car ownership in half in 25 years. The catalyst for this shift will be the dramatically lower cost of car sharing which will have been made convenient by self driving technology. The last chapter in America’s love affair with car ownership is about to be written. But how will sharing self driving cars affect real estate?

Real estate has historically been highly resistant to technological change. The big inventions of the last 30 years were the personal computer and the cell phone. Those changed how we work, but not so much the buildings where we work.

You have to go back over 100 years to find a technology that transformed real estate. In the early 1900’s three new technologies coalesced to create the large scale, high density commercial real estate that we take for granted today: (1) the development of low-cost load bearing steel by Henry Bessemer; (2) the development of electric powered air conditioning by Willis Carrier; and (3) the invention by Elisha Otis of an elevator that someone of sound mind would actually use.

Will shared self driving cars be more like the personal computer and cell phone, greatly impacting our lives but having no impact on real estate? Or will they change the real estate paradigm?

Probably somewhere in between.  Let’s break it down:

Urban commercial districts. All people who commute to work in an urban center want to reduce that tortuous twice a day ritual.  Autonomous cars promise to do just that by not only doing the driving but by coordinating movement among vehicles to make those inexplicable slowdowns on the highway a thing of the past. It’s not a leap to say that an easier and quicker commute is likely to increase the demand for office space in urban areas.

There is another impact to consider. When you get to work your shared self driving car will not park itself but will go off to shuttle other people and goods until you’re ready to head home. Demand for parking will plummet freeing up additional land for development.

Suburban office. One of the results of the recent trend of “densifying” office space is that many suburban office parks now have inadequate parking. A design that provided 3.5 parking spaces for every 1000 square feet of office space worked perfectly for years, until we started putting five or six employees in that same 1000 square feet. Many suburban buildings will ultimately be saved from the brink of obsolescence by car sharing. Some suburban office parks in high demand areas will even flourish as they are able to convert now unneeded seas of asphalt into more office buildings.

Retail. The Internet has savaged traditional retail. And the self driving car will likely make it worse. Amazon, Google and Uber all envision a world where autonomous vehicles will provide you with near instant gratification right to your door. “Two day shipping” will be a hardship you tell your grandchildren about. If you can get your purchase delivered to you in a self driving car in under an hour, why have bricks and mortar retail?

Industrial/warehouse. The trucking industry is expected to be an earlier adopter of autonomous vehicle technology. An autonomous truck can drive 24 hours a day with no labor costs and far fewer accidents. Lower freight cost will allow the industrial and warehouse industries to locate further away from the customers they serve. That means a single location can economically serve a larger area with resulting consolidation. Further, with lower transportation costs, locations next to major highways may not be able to charge the premiums they have historically demanded.

Housing. If you had a safe, inexpensive chauffeur at your disposal 24 hours a day, where would you live? Would you finally get that hobby farm? Maybe you love living in the city, but with shared self driving cars, how much of a premium would you be willing to pay for a home that has off street parking?

Coupling self driving technologies with car sharing will dramatically increase the convenience of travel and slash the cost of getting there. Imagine a world where as soon as you step into a car you can start your workday, read a book or catch up on the latest episode of your favorite TV show. Imagine a world where computer guided cars communicate with each other to eliminate congestion and traffic jams.

The “rules of the road” are about to be rewritten. The popularization of the automobile in the early 1920s, and the expansion of the interstate highway system in the 1960s each effectively shrunk time and space, and as a result each changed the American landscape. Get ready for another paradigm shift brought to you by the shared self-driving vehicle. Please fasten your safety belts.

This article was written by Judson Wambold and published in the November 21, 2016 Philadelphia Business Journal.

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