Why it's too early to bet on driverless cars reshaping real estate

Still risky for investors

12 Feb 2018

Fully autonomous vehicles – or rather, the technologies for them – are almost here. But how will driverless cars impact real estate when they arrive on the streets?

Imagine a world where robotic cars whisk you from one place to the next. While in transit, you can work, or, depending on the car's features, catch up on your sleep. It's safe thanks to intelligent control software, lightning fast reactions, tireless attentiveness, better all-round visibility, and strict adherence to traffic laws, and it comes without the stress and wasted time of battling city traffic.

Forecasts tell us that perceived travel times would shrink to virtually zero, and as a result, motorists would be willing to drive more frequently and cover longer distances. Car movements would increase significantly too, as unoccupied vehicles roam around picking up passengers or performing other activities. Large numbers of current non­vehicle owners – the elderly, disabled, children, etc. – would likely adopt driverless cars if given the choice. It may all sound utopic now, but it could become our everyday reality.

Still bumps on the road

With near weekly newsbytes about autonomous cars, the automotive industry implies that these vehicles will start appearing in showrooms in only a few years’ time. However, driverless cars are a long way from becoming widespread – too many hurdles still lie ahead. The ethics of programming algorithms to resolve life-or-death questions, for example, is particularly difficult. People are wary of accepting actions taken by autonomous technology that may result in injury or death, even if autonomous technology has a better track record statistically than human drivers.

In addition, lawmakers have to establish the legal basis for the use of driverless cars. Germany, for example, passed a bill in April 2016 that puts the ultimate responsibility for accidents on the human sitting in the driver’s seat. As a result, drivers have no choice but to constantly monitor the system, largely eliminating the touted advantages of fully autonomous vehicles.

Technical reliability has been elusive too. None of the current assistance systems work flawlessly. Road sign recognition – for example, the technology that shows drivers the maximum legal speed – regularly ceases to work when signs are dirty. Reading cameras are also particularly prone to failing due to rain, snow, ice or dirt, or when the sun is low – the kind of changing weather conditions you can often find on mountain roads.

Parking, access and travel patterns would change

While it is currently unclear whether, when and how autonomous vehicles will change how we get around, there is no shortage of reports on how this technology is poised to completely disrupt property markets, and how it will force real estate investors to rethink their investment strategies.

These reports forecast that a significant number of people could decide to purchase trips in an autonomous vehicle instead of owning one or more cars. This would result in lower demand for garages, parking spaces and driveways, meaning existing space would be repurposed. Even large downtown parking garages would become obsolete because autonomous cars would either be constantly running or parked in large, fully automatic parking systems on the city periphery.

Changes could also come for access roads to big apartment complexes, offices and retail outlets, as they would have to be redesigned to allow large numbers of people to get in and out of cars, and to gas stations (Switzerland, for example, currently has around 3,400 of them), since autonomous cars would be maintained and filled up in fleets at central locations. Travel patterns would alter as well. The ability to relax and even sleep in autonomous cars would eliminate the need for travelers to interrupt their trip and spend the night in hotels close to main traffic arteries.

Betting on a real estate revolution

Because the rise of fully autonomous vehicles is expected to revolutionize the property market, governments and real estate developers are already being encouraged to devise flexible long-term development strategies. At the same time, they are being told that cities need even more parking capacity – at least in the short term. The recipe for success is, therefore, to build parking garages that can be easily converted to retail or other uses over the long term.

Optimistically, it would take a decade or more before driverless cars become a reality and can be used anywhere, at any time, and at least as safely as human-operated vehicles. When that day arrives, another question will surface: How many people will still drive themselves, either because they enjoy sitting behind the wheel or do not trust the machine? With a long time horizon and so many uncertainties, betting now on a brick-­and­-mortar strategy that is fully aligned with autonomous vehicles is still risky.

Get the latest investment news directly in your inbox.