By Dan Gorczycki, Senior Director

It has been fascinating to see the advent of self-driving cars. What was once a novelty is now seeming like an inevitability, that all cars will eventually be self-driving. Will this be 5 years, 10 years, 15 years into the future?

According to a McKinsey report, they estimate over 40% of vehicles will be fully autonomous by 2035. So, what are the ramifications for commercial real estate and what financial decisions should we make as a result? If it radically alters where and how we work, shop, and live, shouldn’t developers gravitate to where they can take advantage of this trend? More importantly, are there sectors that will get hurt where developers should eschew new acquisitions or even sell if there is a binary risk? Here are a few predictions as to how they could reshape the commercial real estate landscape and proposed action steps for each:

1. Many Parking Garages Will Become Obsolete, Especially in Urban Areas:

According to the International Parking and Mobility Institute, 20-30% of urban land is currently devoted to parking. Self-driving cars can continuously circulate, park off-site, or return home after dropping off passengers. So below ground garages may become worthless. Of course, surface lots and parking garages near office buildings, malls, and transit stations may be repurposed into higher value uses such as office, residential, or mixed-use developments.

Action: Avoid new multi-level parking investments in urban cores.

2. Expansion of Commercial Zones Could Hurt Some CBDs.

Self-driving vehicles will make commuting more efficient thus allowing businesses to consider relocating outside congested city centers. According to Boston consulting group (BCG), average U.S. commute times could drop by more than 25%. Resulting in a reduction of central business districts (CBD) since a company could develop rural business campuses on more affordable land. This could then result in cheaper housing for employees. Those CBD buildings that integrate with self-driving car technology will have a big leg up. Will that hit a city like New York? Likely not. However, one could see it adversely affecting secondary CBDs.

Action: Underwrite longer-term risk to secondary CBD office assets and seek infill land plays in suburban areas.

3. Retail May Shrink Further But With Some Winners Due To An Enhanced Base.

The “Amazon Effect” has already impacted retail. However, because self-driving cars might cause easier deliveries (Deloitte estimates last-mile delivery costs will decrease by 50% or more), a decrease in physical stores and an increase in showroom-oriented storefronts might be the result. Self-driving cars can also offer mobility to individuals who are elderly, disabled, or otherwise unable to drive (an estimated 35 million people with limited mobility), thus broadening the potential customer and employee base for many retail properties. Retailers, healthcare providers, and service businesses may see more visitors from previously underserved populations.

Action: Study implications of self-driving cars to any proposed retail developments on a case-by-case basis.

4. Rejiggering Public Spaces and Urban Design

With fewer cars parked on the street and less traffic congestion, urban planners and developers can redesign how space is used:

• Greener, more walkable neighborhoods: Freed-up space could be converted into parks, pedestrian zones, or bike lanes. MIT estimates that freed-up curb and parking space could add 50-60% more walkable public areas in dense neighborhoods.
• Integrated transportation hubs: Mixed-use developments may incorporate ride-hailing stations, automated vehicle (AV) charging depots, or micro-mobility storage into their designs.

And What Is The Biggest Obstacle?

A lot would have to change in the next 10-15 years before this becomes a reality. What about people who don’t want a self-driving car and are attached to their old car? This is difficult to predict, but clearly there will be a hybrid environment during that time. Some other difficulties to consider are:

• Zoning and regulation: Cities must adapt zoning laws to accommodate AV-related land use changes.
• Data infrastructure: Properties will require an incredible amount of digital infrastructure to support AV navigation, communication, and coordination.

The question is not whether AVs will affect commercial real estate—but how quickly, and who will capitalize on the shift first.