The impact of autonomous vehicles on real estate


Jeff Englander
Head of C&I Credit Portfolio Management & Reporting

At this year’s Consumer Electronics Show, the most popular exhibits weren’t in the Convention Center. Autonomous Vehicles, or AVs, fascinated attendees and dominated the parking lot next to the Las Vegas Convention Center. In fact, AV trips down the Las Vegas Strip, provided by the ride-sharing service Lyft, were one of the most popular venues of the show. However, interest in—and implications of—AVs pose questions that reverberate far beyond the Nevada desert.

How quickly and deeply will AVs be accepted by the general public and what will the vehicles’ ascendancy mean for other parts of the economy? The timing of when AVs hit the road in large enough numbers to change purchasing and consumer behavior is one of the most hotly debated issues of this emerging technology.

While the well-respected Institute of Electrical and Electronics Engineers estimates that up to 75% of all vehicles will be autonomous by 2040, many analysts expect mass produced AVs to be introduced in 2020 and become ubiquitous by 2030.

In addition, the results of investigations into two highly publicized deaths involving AVs, and how forthcoming the industry is in cooperating with these inquiries, will likely affect adoption rates. Given the lack of transparency regarding the artificial intelligence powering AVs, restoring public confidence will be key. The industry will have to show that it has discovered and remediated whatever functional and technological issues existed—and demonstrate a willingness to address them in the future. Only then will AV makers be able to convince the public that the vehicles are reliable and safe.

We anticipate AVs will initially be deployed along less congested, recurring routes in smaller communities as operators learn to master real world operating conditions. Gradually, AV use will expand to larger, more congested metropolitan areas. Throughout this evolution, regulators and legislation will affect how automakers and AV operators deploy fully autonomous vehicles and semi-autonomous vehicles—where drivers have the ability to retake control under certain circumstances. In addition, we expect AVs will gain broader acceptance as drivers feel more comfortable relinquishing control to more automated systems, paving the way for migration to fully autonomous vehicles.

Once AVs capture significant market share, many economic and social changes are expected to follow. The demand for parking—and parking lots—should decrease significantly. As AV-based ride-sharing services such as Lyft and Uber evolve, the number of passengers per vehicle should increase, reducing cars on the road. Moreover, because AVs are only “parked” while recharging or swapping batteries, a dramatic number of street and dedicated parking spots in and around offices, shops, and residential locations will have to be repurposed. For example, many developers are beginning to design their new buildings with larger drop off zones and parking structures with exterior ramps and higher ceilings. This way, the ramps can eventually be destroyed, and the garage space can be reallocated.

In cities and towns, space now dedicated to parking can be reclaimed for bike lanes, HOV vehicles, widening already congested roads, and public use. In addition, AVs have the potential to reshape public transportation systems. This change may be driven by the ability customize vehicle sizes and routes easily based on demand, the lack of station infrastructure for pick-up and drop-off, and technology that can coordinate trips and customer pickup points. Widespread autonomous vehicle use will require large municipal investment in sensors, traffic technology and other infrastructure. Ironically, these cities will also feel the loss of parking revenues.

In residential neighborhoods, it appears AVs may have two distinct, yet complementary, effects. A recent MIT report, Real Trends: The Future of Real Estate in the U.S., predicts that AVs could encourage even denser urban metro areas with plentiful facilities and services, while simultaneously aiding in the expansion of so-called “edge cities.” According to the report, expansion of these “edge cities” will be driven by workers’ willingness to fill long commutes with work, rest, play and online shopping. In addition, considering that the average car is used only about 5% of the day, consumers would realize significant savings on transportation costs that could be redirected to housing. It’s anticipated that, unlike present-day suburbs, these “edge cities” would be more densely occupied and offer easily accessible shops, healthcare, restaurants and cafes, childcare and entertainment.

While the general adoption of AVs may be many years away, these vehicles have the potential to reshape society, free up valuable land, and reduce congestion and pollution. However, these changes will also require significant investment, changes in consumer behavior and attitudes, and a willingness to relinquish the driver’s seat to machines we must learn to trust.