By Michael G. McGuinness
Autonomous vehicle (AV) development is advancing quickly and will be here before you know it. With widespread adoption, AVs have the potential to substantially reshape transportation patterns and real estate demand. Municipal governments, through land use regulations and zoning, will play an important role in determining how transportation and land use evolves.
CRE is already being disrupted by transportation network companies, or TNCs, also known as mobility (shared) service providers, that match passengers with vehicles via websites and mobile apps and are shared among users either concurrently or consecutively. These include public transit, taxis and limos, car sharing, ride sharing, ride sourcing or ride hailing such as Uber and Lyft, ride splitting, bike sharing and scooter sharing (micro-mobility), shuttle services, jitneys and more.
The growing demand for TNCs is attributed to waning interest in car ownership, which is expected to peak in 2020 and then diminish, among young people. “The automobile as we know it — gasoline- and diesel-engine powered — will be largely obsolete by 2035 as ride sourcing will be the norm,” said Joseph Brancato, co-managing principal with Gensler, at a recent NAIOP program titled The Future of Mobility. The driverless car will lend unprecedented mobility to those including the youth, elderly and blind, providing on-demand travel with a fraction of the cars currently on the road. Those who still own cars will pay a lot for that luxury and will be limited to where they can drive.
As scary as that may sound, the idea of not having to pay for car insurance, gasoline, maintenance, parking and tolls is rather appealing. I won’t miss being late for meetings, wasting a week of my life sitting in traffic, soiled suits and coffee-stained ties, fender benders, road rage headaches and missed opportunities. Some experts say an exponential increase in ride sourcing, ride sharing and AVs will lead to greater use of mass transit. Yikes… are NJ Transit, PATH and Amtrak prepared for an onslaught of new riders?
Widespread AV adoption has potential to significantly affect demand for real estate, depending upon whether AVs are owned by individuals or fleets. If AVs are primarily operated by ride-hailing services and public transportation agencies, they could significantly transform cities by reducing traffic and parking requirements, leading to increased density in urban cores. Fleet AVs could be integrated into existing transit networks or leased by commercial property owners to shuttle workers. On the other hand, AV ownership by individuals could encourage longer commutes and leapfrog development. As car ownership shifts to “pay per mile,” our economy will be remapped with an increase in suburban office and accessibility. Under either scenario, widespread AV adoption could decrease the premiums tenants are willing to pay for properties near transit hubs. As parking lots decrease in size and demand, curbside access will become an even hotter commodity. Interestingly, Houston no longer requires off-street parking for new development in its central business district.
AVs will likely require the installation of new infrastructure. Driverless cars sense the environment and navigate with radar, infrared, laser and lidar technology. They benefit from the installation of sensors and signals in some locations, such as complex intersections. By 2030, the number of sensors will outnumber people 3:1. Networking AVs — allowing them to operate remotely or travel closely together — would also require the deployment of new telecommunications infrastructure, such as 5G networks, including atop commercial buildings. More data centers will be needed to support AV technology.
The race to adoption will see many challenges from government agencies, with safety as their primary concern. Heavy reliance on data and technology will require continuous monitoring, maintenance and software upgrades to reduce the risks of cyberattacks. AV adoption may prompt local and state governments to seek new revenue sources to replace those lost from human-operated vehicles, such as parking fees, traffic tickets and gas taxes. Governments may tax vehicle miles travelled, or VMT, to recoup lost revenues, discourage long commutes and keep empty AVs off the roads. A VMT tax could affect real estate demand, as could congestion pricing. Let’s not forget the likely downsizing of the car insurance industry, which generates about $200 billion annually in the U.S.
Whether it’s an Uber, a scooter, a shuttle, an EV or an AV, dramatic and rapidly occurring societal changes demand immediate attention as we plan, design and construct new infrastructure, utilities, buildings and architecture. Reduced off-street parking, less structured parking, more curbside drop-off and pickup areas, narrower streets, mobility hubs for electric vehicle charging stations (with ramped-up lines for electricity and data) are being called for. As Brancato states, “the more than three billion parking spots found globally will be transformed into bike lanes, dining areas, parks and other meeting places as cities ‘give the streets back to the people.’” As private car ownership diminishes, the CRE marketplace will need to decide how best to transition gas stations, car dealerships, car washes and repair shops into new productive use.
In the meantime, many businesses struggle with how to get employees to their facilities, especially for first- and last-mile trips to and from transit facilities. With serious workforce shortages, this has never been more important. Fortunately, New Jersey is well-served by a network of transportation management associations, or TMAs, whose job is to form partnerships with businesses and local government to provide commuter information and services. These groups apply carefully selected approaches to move people and goods within an area. TMAs also provide traffic demand management assistance to employers through the new Employer Services Program. There are eight TMAs in New Jersey: Cross County Connection TMA, Greater Mercer TMA, Hudson TMA, HART TMA, Keep Middlesex Moving TMA, Meadowlink TMA, Ridewise TMA and TransOptions TMA. TMAs give businesses and local governments a voice in local, regional and statewide transportation decision-making, including carpool, vanpool and public transit services. They also offer public-private forums on transportation planning, financing and implementation of alternatives to commuting alone.
In summary, we need to recognize that transportation is: the No. 1 source of carbon pollution in the United States; the second-largest expense for most families (after housing); and one of the biggest barriers to employment for Americans today, via the lack of reliable access to a car, bus or train. “New forms of shared mobility offer new opportunities to address some of the most critical issues facing society. In combination with public transit, shared mobility is a powerful tool that cities can use to: help reduce transportation costs; lessen air pollution; and expand access to jobs, opportunity, and a better quality of life” (source: https://sharedusemobilitycenter.org/). New Jersey should take a close look at European cities that have been honing their shared mobility game for many years, and adopt best practices that cover model contracts, integrating apps, incubators for shared mobility startups, on-demand insurance products, financial incentives and co-marketing transit and shared mobility services. Put that in your pipe and smoke it.
Note: Some of the findings in this article were taken from the November 2019 report, “Preparing for Autonomous Vehicles: A Survey of Local Governments,” authored by David Dale Johnson, PhD, University of Alberta and produced by the NAIOP Research Foundation.
Michael McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.