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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   December 2017

Future-Driven Real Estate

Self-driving vehicles could change investment and land-use decisions in urban areas

Future-Driven Real Estate

Automation is taking over the transportation industry. In the coming years, it figures to influence commercial real estat eland use. Depending on how quickly self-driving automobile technology gets adopted, the number of surface and garage parking spaces in urban areas could decrease by 60 percent or more in the next 25 years.

Commercial mortgage brokers should understand how this technology may potentially change travel behavior and how the reduction of parking garages, for example, may result in different uses for the land these facilities now occupy, which, in turn, will create new financing opportunities.

The single-occupant vehicle has thrived since the end of World War II and the need for an abundance of convenient parking has mirrored this growth. Currently, there are an estimated 1 billion to 2 billion parking spaces — surface, garage and street parking — in the U.S., covering between 16,000 and 25,000 square miles of land. That is comparable to the geographic area of Massachusetts and New Jersey combined. This means there are between four and eight parking spaces for every registered passenger vehicle in this country.

In suburban areas, parking is usually plentiful and free as a function of lower land values. In dense urban cities, surface and garage parking facilities only make sense when they are profitable, which is a function of user costs, operating costs and demand. As the prevalence of automation technology for transportation grows, the use of surface and structured parking spaces in urban areas is expected to decline, since fully autonomous vehicles will be able to work without drivers. Factors such as mass-transit developments and telecommuting trends also are likely to contribute to a decline in the demand for parking spaces.

Degrees of automation

Autonomous vehicles (AVs), or self-driving cars, have been talked about for years and are frequently mentioned in science fiction, but government and private-industry officials should start planning for their arrival in the real world. AV is a reference to vehicles that may have both autonomous and connected-vehicle technology. There are many potential benefits to AV technology, including improved safety, increased roadway capacity and improved parking efficiency.

There are different degrees of automation, ranging from Level 0, which requires a human driver at all times, to Level 5, which allows fully autonomous operation with all road types, speeds and environmental conditions. Level 4 and 5 vehicles can drive themselves and operate on most roadways without a driver present in the vehicle. These degrees of automation will have the most direct impact upon travel behavior and, indirectly, upon land use.

With the average lifespan of a passenger vehicle in the U.S. reaching 11.5 years, it will take time for AV technology to spread. Researchers estimate that by 2040, up to 60 percent of all passenger vehicles sold in the U.S. will be at Level 4 automation and up to 50 percent of roadway travel will be done using AVs. The technology may not only influence single-occupancy vehicles, given ride-sharing and ride-sourcing services like Uber and Lyft have a small but increasing share of vehicle trips in major urban areas. Public transportation and the freight industry also may undergo transformations.

Parking garages

Off-street parking can be expensive in an urban setting with high land values. Construction costs can easily exceed $20,000 per space for underground parking in urban areas, not counting land-acquisition costs. Annual operation and maintenance costs can run from $100 to $500 per space. And the annual user costs for garage parking in a city like Boston can be $4,500 or more.

Parking takes up space that could otherwise be used for additional commercial or residential purposes. 

It is expensive to build, support and pay for parking structures in urban downtown cores. In addition to the direct costs of building and maintaining the facilities, parking takes up space that could otherwise be used for additional commercial or residential purposes. It also results in environmental costs, including increased stormwater runoff, air pollution and “heat islands,” urban areas that are warmer than their surroundings due to human activity.

The location of a parking structure depends on the number of spaces needed and on the value of land where the facility is found. If the need for urban parking spaces shrinks because of automated-vehicle technology, property developers and operators will need to rethink the profit margins for building and maintaining these facilities.

Satellite effect

Parking is vital to the operation of our automobile-dominated transportation system. There are more than 250 million passenger vehicles in the U.S., and many of them are parked about 95 percent of the time. Tens of thousands of people drive into every major city each day to work or shop. Some drivers have free or subsidized parking, but many others will pay $200 a month in midsized cities, and more than $700 a month in major urban areas like New York City.

With AVs that are owner-operated, people may be less likely to park in downtown locations, given the higher parking costs, unless they are being subsidized. Under an owner-operated model, the vehicle could drop off its owner at a destination and either return home or to a less-expensive satellite parking facility. The owner could then remotely summon the vehicle for a pick-up at an appropriate time. Given this scenario, it begs the question: Why would an AV vehicle owner pay for downtown parking if they could save money by parking at a satellite location?

There also are alternative questions to ask when determining a parking location: How far away does the user live from their destination? What does the user pay to operate the vehicle? Does the user need the vehicle for other trips during the day? An AV user may need flexibility in departure times, or lead time for summoning the vehicle. Additionally, a parking facility’s automation capabilities — how easily it interacts with driverless vehicles in terms of navigation and payment — come into play. Parking garages that cater to AVs should be able to accommodate more vehicles per square foot.

Transportation transformation

If the model of fleet ownership using ride-sharing or rental agreements dominates AV technology, the need for all types of parking facilities in major cities becomes increasingly unnecessary. Vehicle ownership per household could decrease and people may become more dependent on alternative transportation modes like walking, biking and public transit. An AV fleet vehicle would likely be in constant operation and might not need a parking facility, although this could increase the need for maintenance and storage facilities in locations with cheaper land values and more available space.

Parking facilities at transit stations also are likely to experience reductions in usage with either the owner or fleet model. Most transit-station parking facilities cost users a few dollars per day and, in the largest cities, most people who use them live within three miles.

AV technology is starting to permeate the transportation marketplace. All levels of government are studying and planning for the advances in technology. The most noticeable effects it will have on land usage are likely 20 years away, but as AV technology becomes more widespread, it has the potential to drastically change the utility of certain land uses, such as parking structures.

AVs may force public and private entities to consider the economic viability of surface lots and parking structures in urban settings. They may cause developers and investors to reassess investments in existing parking structures, and maybe prompt many of them to explore new uses for the land these structures occupy. Investors will need to examine the profitability of constructing new parking structures, with possibly less demand in some locations.

Other land uses, such as commercial, residential and open space, should be considered in place of parking structures in urban settings. The parking facilities that can interface with AV technology are the ones that have the greatest potential to thrive when there is sufficient, critical mass usage of this technology. As with any advances in any technology, people will need to adapt to it, and land usage will need to adapt to the changes in transportation behavior, as will commercial mortgage brokers who are serving clients affected by the coming transportation transformation.


 


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