Google announced yesterday that after eight years of incubation and research, its autonomous cars division will standalone as a new company under Alphabet. The company, named Waymo, joins Ford, Tesla, Uber, and hundreds of other startups in the rush for the future of transportation.
Commercial real estate investors might look askance at this technology, viewing it as far removed from day to day building operations. But just as commuter trains made the suburbs, autonomous vehicles (AVs) are the contemporary disrupter for how and where we live and work. With the technology still maturing and scale deployment years away, the challenge for real estate is to examine the impact before it arrives.
As I’ve recently thought about the technology, it seems clear that there are three key uncertainties in the technology that will be key to understanding the impact of AVs on commercial real estate.
Fast vs Slow
Our home in Silicon Valley happens to be on the testing route for Google’s prototype Jetson-like vehicles. One thing you notice right away is how slow the vehicle travels. Top speed is capped at 25 mph, and one has already been pulled over for driving that speed in a 35mph zone! This pace makes things easier–automation has more time to investigate and react to issues and inevitable accidents will be less harmful at slow speeds.
Nothing could contrast more with Google’s approach than the image that Tesla projects–an electric supercar that is ready to rocket you across America.
The speed dimension is critical for understanding whether AVs are the pathway to even greater suburbanization or really only relevant in cities. Commutes are always intolerable, but assuming ample and more efficient AV roadways, AVs turn today’s drudgery into tomorrow’s productive time. GM’s Mary Barra contends that cars will soon be our “second office.” While it’s expected most AVs will start at slow speeds, the pace of the long distance AVs will determine how much our workers will spread out, with big implications for commercial real estate.
Shared vs Owned
The internet’s immediate quip of Google’s Waymo branding was that it costs “way more” than a regular car. Initial costs may be entirely prohibitive for individuals, but entirely economical for ride hailing services like Uber. To the extent most AVs are shared with wide adoption, expect even more interest in urban dense areas, as well as seismic changes in the need for parking. America has about a billion parking spots; how many of them will be used if the cars just move on to the next trip?
Public transport might increase in importance as more trips bridge together transport with the last mile on AVs. In short, imagine the shared AV scenario as today’s densest areas of Uber use, with even lower prices and higher usage.
Shared AVs won’t save the suburbs, although depending on the speeds, they might work in dense suburbs. Only owned AVs are relevant for sprawling suburbs.
Routes vs Open Navigation
The final dimension examines how concentrated AVs will be in their routes. Will the routes of AV be predicatable in a way that shifts the traffic flows? And therefore, will those routes be most popular with workers and shoppers because of the availability of AVs?
A few ways this could happen. First, regulators have an uneasy relationship with AVs, and may seek to explicitly direct traffic flows or limit paths where AVs can operate. Second, the algorithms that control AVs might be goal seeking in predictable ways. Especially in a shared scenario, AVs are going to be profit maximizing and are going to quickly understand the patterns of profitable passengers. Finally, the technology itself might limit operations into well understand routes. Because expensive imaging equipment called LiDAR drives most of the costs, startups like Civil Maps advocate mapping once with LiDAR and then reselling that data to cars with cheaper imaging equipment, solving a major cost problem for the industry, but likely concentrating routes in areas where detailed mapping has already occurred and where lower cost cars can operate.
Both of these would result in a constrained world for AVs, where their navigation wasn’t really the open road, but defined routes. Much like public transportation, if that’s where the system is, people and markets will quickly move. Anticipating and reacting to those moves is bread and butter for commercial real estate.
AVs are still years away and I expect many gyrations in the technologies, market players and even policies in the years to come. Watching the core dimensions of how the market evolves and thinking about the impact for real estate will help you capitalize on the real estate opportunities. Or, at the very least, arm you with good banter for cocktail hour.
