“Location, location, location” is the famous real estate mantra that we all have heard before. Now, the question is whether and how this will be challenged once the world becomes ready to welcome autonomous vehicles (AVs) on the streets. Will the importance of location then be relativised, which in turn will have an impact on the value of real estate? Current research shows that the automation technology will most likely impact three main areas: individual travel decisions, public transportation and logistics transportation[1].
Implications for the office market
For both occupiers and investors, the proximity of transportation hubs has always been seen as the means for adding value to office properties. This could be challenged with the introduction of AVs, as people are expected to be willing to commute longer. AVs would make it possible to use the commuting time for more meaningful work, such as preparing for meetings, answering emails, shopping online or simply resting or sleeping[2]. The implementation of AVs is therefore expected to result in a new wave of suburbanization.
CBRE partnered with 99MPH, a firm that specialises in analysing how mobility impacts real estate, to examine the likely effect of AVs on the office market. The analysis was based on the following hypotheses:
- Outlying locations and those that are unserved by public transit may become more accessible and thus more desirable.
- Access to nearby talent may be less of a driver of location decisions.
- Walkable locations may become more valuable.
When will we see autonomous cars on the roads?
The benefits of performing other activities instead of driving could indeed be tremendous, but how far away are we from seeing AVs on the streets? While some companies estimate that things could start happening already by 2030s, others are more sceptical[3], claiming that we should not ask when the AVs will be implemented but where and how. There are several significant obstacles to overcome:
- Regulations: the issue of liability is essential for the future of automatisation.
- Infrastructure/roads that can support autonomy: potholes and poor lane markings are not supporting AVs well.
- Software: for AVs to navigate safely, detailed 3D maps are needed. Although a lot has been done, handling more complex situations is still a field that requires much improvement. Researchers from MIT have developed a new system that allows self-driving cars to drive on roads they have never been on before without a 3D map[4]. This system, called MapLite, combines GPS data with sensors that observe the road conditions.
- Hardware: mass adoption of AVs will clearly depend on the manufacturing capacity. Some industry experts predict that it could take five years and between USD 3bn and USD 5bn to build new factories for custom vehicle programmes and an additional two to three years to ramp up production. This means that a programme started today would not be fully operational until the mid-2020s[5].
Having in mind that a typical car is being used, on average, only 5% of the time, the rise of AVs will eliminate the need for large parking areas. This could be of particular importance in prime areas, freeing up valuable sites for redevelopment. Many developers will have to start thinking about having large drop-off zones instead of parking.
Implications for the industrial & logistics market
Although there are still no autonomous long-haul freight vehicles transporting goods on open roads, automation is very much included in the logistics work process – including autonomous forklifts and robot arms. These are adopted in strictly controlled environments such as warehouses and yards, where different rules apply, and liability issues are less pressing. Besides being used for the transportation of goods, AVs can also combine other processes such as loading and unloading, increasing thus the overall efficiency[6].
According to McKinsey[7], the full automation of freight vehicles will result in a 45% decline in operating costs. The largest part of the savings will be on employees and on fuel. According to estimates, platooning (linking of two or more trucks in convoy) can reach 10% in fuel savings, which is an important figure as fuel costs account for some 30% of total road freight costs[8]. Full autonomy will not happen at once; it will be rolled out in several waves, each of which will result in lower operational costs.
How should the industrial & logistics market prepare for autonomous cars?
The use of AVs will also have an impact on warehouses, as they will need to structurally adapt to allow for AV-friendly entrances and docks. Besides, due to transportation savings and AVs being available 24/7, a relocation to more remote areas will also become an option.
Finally, the constant development of e-commerce is putting pressure on retailers and increasing the need for last-mile facilities. The potential use of AVs for last-mile delivery is facing many challenges resulting from urban areas being a very complex and dynamic environment. The main question here is the capacity of AVs to understand these complex conditions and react accordingly. This goes beyond the capabilities of the currently tested and available technology.
All things aside, one is certain: the race among automakers and technology companies in being first to develop AVs is becoming fierce. Although the adoption of AVs could be many years away, this technology has a tremendous potential to change the landscape of entire cities. Transportation has indeed always been one of the main powers in shaping land use. However, substantial investment is required supported by our willingness, as consumers, to change our behaviour.
Sources:
[1] Albert Saiz and Arianna Salazar, ‘Real Trends, The Future of Real Estate in the United States’, MIT Real Estate, 2017
[2] Alan Ohnsman, ‘Self-Driving Cars May Kill That Old Real Estate Mantra Of 'Location, Location, Location', Forbes, 2018
[3] Jon Walker, ‘The Self-Driving Car Timeline – Predictions from the Top 11 Global Automakers’, Emero, 2019
[4] Adam Conner-Simons and Rachel Gordon, ‘Self-driving cars for country roads’, MIT News, 2018
[5] CBRE, ’Autonomous Vehicles – Driving Change for Real Estate’, 2018
[6] DHL, ’Self-driving vehicles in logistics’, 2014
[7] Aisha Chottani, Greg Hastings, John Murnane and Florian Neuhaus, ‘Distraction or disruption? Autonomous trucks gain ground in US logistics’, McKinsey, 2018
[8]Fender, K. J. & Pierce, D. A., ‘An Analysis of the Operational Costs of Trucking: A 2012 Update’,2012, s.l.: American Transportation Research Institute.
Read more: CBREs Insights from Denmark.
