The self-driving car – a game changer for real estate markets

The future of mobility starts in Freyung. In this rural setting in Lower Bavaria the “Freyung Shuttle” started to operate in September 2017. It is a small shuttle bus without a fixed schedule but it can be called by passengers via smartphone app. An algorithm calculates the routes the bus is taking and how much the trip will cost. Olaf Heinrich, the mayor of the 7,300 inhabitant county seat Freyung has great hopes for this kind of mixture of taxi and bus service and is convinced “that we can improve the quality of mobility tremendously and at the same time reduce costs for local public transport.”

This project is implemented by the Berlin-based technology firm door2door and is not only important for Freyung. In many countries digitalisation causes a fundamental disruption of mobility. Experts believe that one development in particular will question the status quo of current real estate – the self-driving car. “Autonomous vehicles have the potential to change our society,” says Fredy Hasenmaile, Head of Real Estate & Regional Research at Credit Suisse in Zurich.  And Jens Hansen, futurologist from Hanover, supports the hypothesis that self-driving cars will have a massive impact on the quality of real estate locations.

Decentralised locations are becoming more attractive

“With self-driving cars, locations are coming back in focus that previously were considered unattractive due to their poor transport connection,” Hansen justifies his hypothesis. He bases his thinking on a mobility concept that works like the “Freyung Shuttle” but will be even more disruptive because it is based on self-driving cars. Hansen envisions a fleet of self-driving cars which are digitally connected, permanently on the road based on car sharing principles and thereby can get to any desired point as needed.

This has many advantages for the user. On the one hand it is possible to utilise the time during the trip to work, to surf the internet, or just look out the window day dreaming. On the other hand, there is worry free access to local or regional train stations that allow a quick trip to the closest larger city. Besides, the traveller is no longer tied to the rigid time table of public transportation which in rural areas often only run once an hour or even only twice or three times a day. Hansen presents the result as follows: “Peace and quiet, green space, and low cost of living is more important now and the rural areas are becoming more interesting again”.

According to management consulting firm McKinsey the introduction of self-driving vehicles will revolutionise the car sharing market. “Robotaxis can create economical offerings also in smaller towns,” says Kersten Heineke, Partner in the Frankfurt McKinsey office. According to his estimate, by 2030 up to 16 percent of all newly sold cars may be self-driving taxis – so-called robo taxis – to be used for mobility services.

Price differential decreases

And that has consequences. “The proximity to subway stations will decrease in value for a property,” assumes Harald Simons, Member of Board of the consulting firm empirica. “The higher density of infrastructure in cities is no longer an advantage in the era of self-driving cars,” emphasises Fredy Hasenmaile with Credit Suisse. “This is especially true for public transit. In the future, mobility needs in the countryside can be covered just as well as in the city with autonomous cars”. The mobility expert, however, does not expect that remote locations will suddenly turn into hotspots. In his view, the suburbs around larger cities will benefit the most from this development.

The researcher does not foresee drastic price drops in city centres. His reasoning is that the urban core will continue to be attractive for the workforce. “Despite all the possibilities of digitalisation and new communication technologies we still work in centrally located offices since the informal information exchange is vital for productivity,” says Hasenmaile. His prognosis for real estate prices is as follows: “The price differential between centre and suburbs will decrease not because the prices are sinking in the centre, but because the suburbs are increasing in value”.

If that will become true remains to be seen. At this point, self-driving cars are not yet in regular operation. Eckard Minx, Chairman of the Board of the Daimler and Benz Stiftung, does not think it is possible to foresee the extend of impact autonomous vehicles will have on the real estate industry. “There will certainly be an impact on city development,” he said at an event of the Institut der deutschen Immobilienwirtschaft (iddiw) (Institute of the German real estate industry). “In how far autonomous driving will change people’s lives should be part of public debate”. In order to determine the impact of self-driving cars on cities, the Daimler and Benz Foundation commissioned the research study „AVENUE21 – Autonomous traffic: Developments in urban Europe “ in June of 2017.

Fewer parking spaces needed

One of the research subjects is the question how autonomous cars will affect parking space requirements. “There is an assumption that in some areas up to 40 percent of inner city surface area may be reutilized when parking cars are stored elsewhere or if they actually never stop,” says Mathias Mitteregger, professor at the faculty for architecture and space planning at Technische Universität Vienna. He is the research lead for the research study AVENUE21.

“Autonomous cars have to be parked somewhere too, but not necessarily in the city centre,” explains Fredy Hasenmaile with Credit Suisse. “Parking spaces can therefore be used for other purposes and increase the amount of space in the city centres.” According to the consulting firm McKinsey, approximately one quarter of all parking space could be freed for other uses. 

Development is accelerating

Few of the experts dare to make any specific prognoses as to when these developments might become reality. The many open questions about the form of mobility remain one important aspect. Will people be prepared to accept the loss of autonomy and leave the steering wheel to a computer? Will the developers be able to find convincing solutions for the safety issues that have become clear after various accidents of autonomous cars? And can data privacy be guaranteed for all the personal data that accumulates when using a self-driving car?

It is clear that the development toward the self-driving car will be faster than previously expected. Futurologist Jens Hansen believes that by 2030 many of the sketch-like trends of today will be reality. “Therefore,” he stresses in regard to long-term real estate industry developments, “we have to start to anticipate these developments in our current real estate projects.”

The well-known real estate expert Tobias Just emphasises the same thing. “It would be presumptuous if we thought we could determine all these effects today in any detail,” writes the scientific director of the IREBS real estate academy and chair for real estate economy at the University Regensburg. “We don’t know the timetable for truly autonomous driving yet. But if we don’t talk about it, we are literally obstructing the future of our cities.”

The car as logistics centre

The self-driving car will have a massive impact on logistics and retail properties. “In logistics the self-driving car solves the problem of the last leg of transportation,” says Fredy Hasenmaile, Head of Real Estate & Regional Research at Credit Suisse. “Products don’t have to be delivered to the client but will be picked up by an autonomous car from the logistics centre located close to the inner city.” If that were to happen, there might be increasing pressure on retail space landlords. “Online trade will become even more convenient, there will be even less need for stationary retail space in the future,” presumes Hasenmaile.

Logistics service providers are already debating how that last leg, the delivery of products ordered online to the end user, will be handled. The goal is to avoid a traffic breakdown caused by delivery vehicles. Even today, vehicles play an important role in this issue. For example, the car manufacturer Smart which is part of the Daimler concern, and delivery service DHL are cooperating in a test project “smart ready to drop.” The car turns into the logistics hub. Participating drivers can offer their car as a delivery address for online orders, the parcel carrier than deposits the ordered goods in the boot which he opened via an app. 

Parking garages and flats: nothing stays the same

No other real estate space is a much affected by the self-driving car as the parking garage. Experts expect that parking properties will need to be planned differently in the future. Passengers will exit in front of the parking garage and the car will find a spot on its own. Since no one needs to exit the cars inside of the building, the cars can park much more closely and therefore need less parking space.

If the future really brings a fleet of autonomous, digitally linked cars that secure our mobility, this will have an impact on residential properties. Off-street parking regulations would be obsolete. Instead, what would be needed are areas within residential complexes that are similar to a cab rank and offer easy access for the passengers to get in and out of the cars. The car city Wolfsburg is starting some tests in this area. The new construction project Steimker Gärten, developed by VW’s real estate division, embraces current mobility concepts by planning for car sharing space design and a public loading infrastructure for electric cars.