Transportation Revolution and Impact on Real Estate
Multifamily communities with spacious surface parking lots may be sitting on a gold mine if the new transportation revolution shifts into high gear as some expect.
The combination of ride-handling and autonomous cars that is taking transportation by storm suggests that fewer vehicles will need urban and suburban parking spaces in the near future, analysts say. Sprawling, oily commercial and residential parking lots will be opportunities for landlords to create more profitable ventures.
“Our view is that the transportation revolution is the single biggest game changer for real estate since the arrival of the auto itself,” said Green Street Advisors Managing Director Dave Bragg at the Urban Land Institute Fall conference in Dallas. “We think there is impact for every single asset.”
Riding sharing making a noticeable impact
Although in its early stages, the evolution of ride sharing is making noticeable impact in some areas where single-occupant drivers are fewer. In San Francisco, rides have declined from 62 percent from 2009 to 2015, and the city expects that number to fall to 40 percent by 2019 as Uber and Lyft continue to grow, Bragg said.
In addition, Green Street Advisors believes that autonomously operated vehicles will take more cars off the road that now require parking spaces at shopping centers, residences and other venues. But there is much work to be done for a car-loving nation that has steadily put more cars on the road each year since records began being kept in 1960.
In 2013, the number of total vehicles – including cars, buses, trucks, motorcycles and other vehicles – registered in the U.S. approached 260 million as auto sales inched upward. In 2014, lower oil prices were a contributing factor to the whopping sale of 7.9 million cars. That number retreated to 7.7 million last year, but U.S. motor vehicle sales are expected to grow in the next two years.
But the growth could be short-lived. Statistics show that Millennials aren’t driven by having their own car as previous generations. Many have chosen to not get driver’s licenses and instead use public transportation or other ride-handling services. A 2009 report by U.S. Federal Highway Administration noted “youth are driving less, making fewer trips, and traveling shorter distances.”
Public transportation use climbing in the U.S.
Also, public transit uses are climbing nationwide. Americans took 10.6 billion trips on public transportation in 2015, the third highest annual ridership in 10 years, according to the American Public Transportation Association. From 1995-2015 public transit ridership increased by 37 percent, almost double the population growth which increased by 21 percent.
Nearly 2.6 billion trips were taken on U.S. public transportation in the first quarter of 2016. Sixty-percent were taken to work, says APTA. Rail ridership increased 3 percent.
The jump in public transportation is particularly significant considering that bus and rail traffic typically spike when gas prices are high.
“Despite the fact that gas prices were extremely low, nearly 2.6 billion trips were taken on public transportation in the first quarter,” said APTA Acting President and CEO Richard A. White. “It shows public transit services are essential to individuals and the communities they live in.”
Combination of self-driving vehicles, ride-sharing could reduce parking needs
In recent years, park-and-ride lots where riders leave their vehicles to catch a bus or train have enabled public transportation growth. However, the prospects of expanding those lots to accommodate more riders, however, are being challenged.
In October, the town of Summit, N.J., introduced a pilot program to subsidize the cost of Uber trips to reduce parking congestion at its commuter rail station rather than add spaces. One-hundred residents will pay $2 to use Uber and leave their cars at home during the six-month pilot. The city will pick up the rest of the fare.
Bragg believes parking needs will diminish further as driverless vehicles gain adoption by ride-handling services. Already, Uber is testing self-driving vehicles in Pittsburgh, and auto manufacturer Tesla Motors says all its new cars will have self-driving hardware installed.
“This is progressing very rapidly,” he said. “We expect a severe reduction in car ownership, and therefore needs for parking.”
Bragg said that the U.S. has 150 billion square feet of parking space, about four spaces for every car on the road. As the transportation revolution progresses, families will realize a reduced need for more than one car.
“Our thoughts are that two-car households will find it quite appealing to go to one-car as a family car − a car that the household uses to primarily get back and forth to work during the work week − would use the driverless Uber.”
Upscale malls and multifamily properties could be among those to capitalize on the parking space they’ll save. Malls, for instance, could repurpose empty lots not only to expand retail but add restaurants or even residential, Bragg said.
Implications for multifamily could be huge
Reducing the size of parking garages in urban center where land prices are forcing multifamily housing to go up instead of out could be huge. On the flip side, large swaths of real estate devoted to surface parking at suburban apartment communities could be redeveloped to offer more amenities to residents.
“For multifamily, there is opportunity to think about the needs of a five-story parking deck today declining to four stories to meet the needs of a few years from now,” Bragg said.
A suburban apartment community with surface parking could become more valuable than its counterpart today that has a parking garage.
“Today they’re valued the same, we would argue that the one with surface lot parking would have greater value because of densification opportunities there,” Bragg said. “There is greater value to those who have significantly more land. Greater potential for suburbanization, decline for need in parking creates opportunities for high quality real estate.”
Property owners won’t be as aggressive about parking
Ample parking has always been a contention in multifamily for residents. But some multifamily leaders on a panel at the ULI conference are being conservative when planning parking space at new developments because residents aren’t driving as much. And the arrival of driverless car technology means that less emphasis could be placed on future parking space.
“What we’re finding is more residents aren’t coming in with cars,” said Trammell Crow Residential Principal Bruce Dorfman. “What do you do with parking structures if we go to automated vehicles?”
It’s unlikely that most multi-level parking garages could be converted to living space because many like the necessary height, he said. One option could be repurposing for self-storage.
In urban centers, developers may not have to dig as deeply to install sufficient underground parking space. And at $30,000-$50,000 per space whether below surface level or above ground, the savings potential is attractive.
Brian Dinerstein, president and partner of Houston-based The Dinerstein Companies, said changing driving habits only reinforce his company’s strategy to focus more on living space than parking cars.
“There are some real interesting statistics out there,” he said. “We never were aggressive on parking, we’re still not aggressive on parking. I don’t think (driverless cars) is that far off. That said, we’re not going to be aggressive on parking.”