Eric Paulsen Paulsen: “The autonomous-car revolution will defy Mark Twain and, in effect, build more land.”

IRVINE, CA—There’s been a lot of talk about autonomous vehicles and their impact on the commercial real estate industry, but what should we do now to get ready for this disruptor? sat down with Ten-X’s executive managing director—commercial division Eric Paulsen to discuss which sectors will be affected first and how to prepare for this technological advance. What should the CRE industry do now to get ready for driverless cars?

Paulsen: Once driverless cars have taken hold, a much smaller percentage of people are going to own multiple cars, if any. While people will still need to use cars to get around in most areas, they will most likely do so via the sharing economy. Much like the Citi Bike concept, people will be able to use them on demand, with the added advantage of being able to summon a car to you as needed.

The most significant impact this will have will relate to on-site parking lots. With fewer “owned” cars coming and going from a property of any product type, there will be minimal need for on-site parking. Developers will instead want to incorporate fairly expansive waiting areas, where people can stand or sit as they wait for the car to pick them up, as well as charging station and waiting areas for cars.

More broadly, driverless cars will essentially shrink the earth’s footprint. With no drivers, personal and commercial vehicles will be able to make longer distance drives more tolerable, making areas somewhat remote from city centers more viable residential locales. We can expect developers to recognize this and try to capitalize on it.  As most cities will want their industrial product farther removed from housing, driverless trucks will enable them to do so without putting industrial properties beyond driving range. It seems the industrial sector will likely be affected first with the user of autonomous semi-trucks for distribution and delivery. Which sector or sectors will be next?

Paulsen: Industrial is certain to be the first segment of commercial real estate to be impacted by autonomous vehicles, followed by retail and office. As previously mentioned, one of the most significant impacts will relate to space currently used for parking, and retail has a higher parking ratio per square foot of space than any other property type. Since large parking lots will no longer be an absolute necessity, developers will be able to use the extra space on their properties to construct more retail square footage or instead develop more residential or live/work/play environments.

Shopping centers and malls will have separate stations for arrivals and departures, with departure areas designed to let shoppers load their purchases into the incoming vehicle. In some cases, high-end centers are likely to operate similarly to luxury hotels, with concierges helping shoppers load their cars and providing them with other assistance. That is, of course, if shoppers don’t have everything delivered directly to their houses.

In terms of office properties, areas serviced by mass transit are unlikely to see too many changes. In locations where most people commute by car, there will be extraneous areas—currently occupied by parking structures or parking lots—that will become available and will be ripe for development.

But apartments can benefit, as well, without the need for garages, covered parking or open lots. Instead, developers can use the extraneous space as storage areas for ping-pong tables and unused exercise equipment (much like most home owners do with their garages). What will be the initial impacts of driverless cars on parking and infrastructure?

Paulsen: While office, retail and residential properties may no longer need on-site parking, cars will ultimately have to be stationed somewhere. This will likely lead to the development of structures within a few miles of downtown areas and major population centers, where cars can be stored, charged and repaired. I envision that transportation will become a service industry like cable TV or phones, where you have several types of rental car operators that provide service for either an annual subscription, mileage plan, or per-ride costs. Those service providers will own and operate the parking/repair structures. What else should our readers know about how to approach this disruptor?

Paulsen: The most important concept for real estate professionals in regard to any potential disruptor is to stay ahead of the curve with their physical real estate. The arrival of driverless cars represents a significant paradigm shift that promises to change the way people travel from one place to another for work or play, and it certainly will have a major impact on land use. Real estate professionals will want to make sure new properties being developed are either equipped for this impact or can be easily converted at minimal cost, and that existing properties won’t become obsolete or less desirable. For those buildings in major MSAs where longer-distance public transportation is strong—and there is an ability to walk for all of your needs—the impact of driverless cars will be minimal. Other areas that have developed more horizontally could find themselves with a lot more usable land, which will provide owners with additional value. Mark Twain is quoted as saying “Buy land; they are not building that anymore.” In this case, the autonomous-car revolution will defy Mark Twain and, in effect, build more land.