Driverless Cars Could Drive CRE Changes

Self-driving vehicles have yet to be commercialized. (Photo courtesy of Google)

LOS ANGELES—Google is set to unveil a fleet of driverless cars on the streets near its Mountain View, CA headquarters, but self-driving vehicles continue to be far from commercialization. However, a new report from CBRE Group says the technology could have potentially significant impacts on commercial real estate. Among these are the relocation of industrial and logistics facilities to lower-cost areas, revitalization of secondary retail in suburban locations and a pronounced increase in demand for data centers. “Self-driving vehicles are a disruptive technology which is likely to change transportation networks and urban landscapes dramatically over the next two decades,” says Revathi Greenwood, director of research and analysis at CBRE. “They will create a number of opportunities and challenges for commercial real estate occupiers and investors as the technology evolves and is widely adopted.” In her report, Greenwood identifies five opportunities and challenges for CRE occupiers and investors alike. First up is the technology’s potential impact on the industrial sector, and specifically site location. The report says that autonomous driving technology is likely to be adopted more quickly in the cargo markets than the passenger markets, due to the lower risk to human life. “Self-driving vehicles significantly expand the one-day coverage trucks can provide a warehouse—an important location analysis metric,” according to CBRE. Self-driving vehicles could also bring seniors to secondary retail. “Affluent, suburban senior citizens with safety concerns about driving might be the first to adopt self-driving cars,” the report states. “The increased mobility, combined with the greater leisure time that senior citizens enjoy could increase retail spending and may revitalize retail in secondary locations.” The new technology may also have implications for transit-oriented developments—and not in such developments’ favor. Greenwood notes that office buildings near transit hubs have seen increased demand, indicated by faster leasing and higher rent premiums. Absent significant and sustained investment in public transportation, “self-driving cars may draw passengers away from aging and unreliable mass transit networks, particularly if there is little cost differential,” according to the report. “This could lead to erosion in the premiums that transit-proximate buildings have traditionally claimed,” Greenwood says. “It could also shift nodes of development away from mass transit and toward highway nodes/intersections. Such decentralization could be good news for suburban office parks located within city limits but not easily accessible from public transit.” Data center demand could be spiked by the proliferation of vehicles that are, as the report puts it, “mobile, computer-driven, telecommunication devices.” It could also drive future office demand as the cybersecurity concerns raised by the vehicles increases the need to encrypt data, thereby increasing the space requirement of the firms that encrypt it. As a recent Partner Engineering & Science webinar pointed out, the parking garage as an asset class could go the way of the dodo bird. “Self-driving vehicles could make many downtown parking structures obsolete,” Greenwood says. “This would not only free up prime space in urban cores, but also affect the economics of development and the pricing and usage of existing buildings.”