Your driverless ride will be here before you know it.

  • The WSJ reports automaker GM will start testing self driving cars in less than 12 months with ride sharing service Lyft. 
  • In 2015, Google, Apple and Microsoft all announced plans for proprietary connected car platforms, allowing cell phone functionality to your car’s dash.
  • Apple appears to be moving even further towards “car as a service” with a recent $1 billion dollar investment in Chinese lift sharing company Didi Chuxing.
  • University of Michigan in Ann Arbor is building MCity, its 32-acre environment for testing self-driving cars and is designed re create challenging conditions they could face on roads.
  • Business Insider reports on a BI Intelligence analysis that predicts there will be 10 million self-driving cars on the road by 2020

Oh, also you can now sign up to take a driverless car for a spin around London, according to a recent C|NET article. Mr. McCartney, kindly que up  “Drive My Car.”

Beep beep, beep beep - yeah!  (iStock)

Beep beep, beep beep – yeah! (iStock)

Soon, our old fashioned laws in the United States will finally catch up with technology and permit these George Jetson vehicles from the future on public roads. When Uncle Sam gives the thumbs up, we will see a massive difference in how people commute.

Change is already starting to occur in major US cities via UberPool. Check out Uber CEO and Co-founder Travis Kalanick’s TED talk on his company’s success in reducing traffic through that very tool. I’ve personally used UberPool on a number of occasions in multiple cities and found it not only a quite pleasant way to get around but also to meet new folks.

When (not if) self driving cars become the norm, the need for personal vehicles will drop dramatically. There will be profound changes for freight delivery, transportation networks, auto manufactures, dealers, and consumers alike. Entire industries and employee labor sheds will be reshaped.

The idea is that someone could sign up for Apple Car just like you would iTunes. You would subscribe to transportation and simply summon a ride whenever necessary. You ditch your car and sign on to a service – no fuss no muss.

And guess what, if self driving car services eliminate office workers need to drive to work and park, this will also change the way we interact with and even value commercial real estate (CRE).

If we fast forward to the early 2020′s, I think CRE will feel the impact in at least three ways.

Revenue

So, what if you are the owner of one of those big urban beauties? You are large and in charge of a 50 story tower built on top of a parking podium. You have a love hate relationship with parking. While it’s difficult to administer, landlords with buildings in urban markets make huge coin from monthly parking payments.  According to Statistica, revenue from parking operations in the US will exceed $10 billion in 2016.

In your case, (and keeping it simple) let’s assume you have 1 million feet of space leased at $45 a foot, net of expenses. If you are fully leased in our example, you would have $45 million a year in income. On the parking front you have 2,000 spaces at $180 a month on average. So you collect a little over $4.3 million a year in parking revenue.

If parking were completely removed, you’d lose 10% of your income.

What does the income loss do to value? Applying a 6% capitalization rate to $49.3 million means your asset is worth $820 million. Apply the same rate to 10% less income means the tower of power is now worth only $750 million.

Our math shows your owners just lost $70 million in value because of self-driving cars. Ugh, that hurt.

On the upside for ownership, future developments could dramatically reduce their garage sizes. Depending on what kind of garage one builds, space can range from $19,000 to over $30,000 per parking stall. That’s a lot of capital that can be redeployed in other areas.

Approach Into and Out of Buildings

Now put yourself in the shoes of an employee headed to work. They are happily Tweeting and Facebooking on the way in and are all caught up on the news.

Think about how you enter the typical American office building. You pull into the garage and walk into the lobby after you park your car. What would happen if everyone were getting dropped off in the morning and picked up in the evening instead? We’d have different crowd management issues.

We’d need to rethink the whole arrival and departure experience for CRE. Would landlords build the equivalent of taxi holding pens for the vehicles of the future and could they charge for them? Would lobbies, which many times are ceremonial, need to be larger to accommodate groups of people awaiting their chariots?

Perhaps we could finally activate these public spaces similar to a nice airline club area with seats and power to charge our many devices. Airlines make money on their clubs. I’d bet landlords aren’t far behind.

Reuse of Parking Garages

We’ll likely always need some parking in office buildings, but what if the ratio went from today’s 3-4 spaces per 1,000 square feet of office space to .01 spaces per thousand?

In suburban locations, surface parking would simply be replaced with vertical structures that could house more workers.

However, in urban environments, we would have a huge amount of extra space in existing garages. Cross-fit gyms only need so much square footage. Could some kind of retail mall squeeze into the empty decks of the future or would landlords now try to sell storage? Is this a new opportunity for the co-working crowd?

Creative garage conversion is about to be a thing, I predict.

iLandlord

The bottom line is that many of today’s office buildings could find themselves functionally obsolete in the worst case or having a reduction in value in even the best case. We’ve been here before many times, however. Remember the curvy buildings of the 1980′s?

Landlords and their architects will have a real opportunity to reinvent their product into new and interesting structures without the burden of all those vehicles. One thing they may now be able to provide to the tenant community are the densities that many companies yearn for. In the old days, we used to try and get 4 people for every 1,000 feet in space. Now some companies are well more than double that number.

Tenant sided real estate executives will have one fewer issue to argue about – the parking provision.

And Paul McCartney called it all when the Beatles released their ditty in 1965. I knew I liked that guy.