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PREPARING FOR A “DRIVERLESS” WORLD

As the buzz around autonomous vehicles grows louder every day, the technology’s evolution is now at a point where it is no longer a matter of “if,” but of “when.”

Several of the world’s largest and most innovative corporations – including Google, Apple, Uber and most major carmakers – are aggressively investing massive amounts of capital into autonomous vehicle technology. In early 2016, U.S. Transportation Secretary Anthony Foxx announced a 10-year, $3.9 billion investment “to accelerate the development and adoption of safe vehicle automation through real-world pilot projects.”

Advocates say that autonomous vehicles are safer, because most accidents are caused by human error, and more efficient. With no need to focus exclusively on operating their vehicle, humans can accomplish other things as they move from place to place. Autonomous vehicles use less fuel and would ease the gridlock on our nation’s roadways, supporters say.

Critics cite the loss of human control, the potential for compromised technology and the ultimate expense as three issues of concern. Also, many people question how the artificial intelligence operating a vehicle, when confronted with a moral dilemma (e.g., two options, both of which will result in human injury or fatalities), can be programmed to make such a choice.

Nonetheless, Navigant Research predicts that sales of autonomous vehicles will grow from fewer than 8,000 annually in 2020 to 95.4 million in 2035, representing 75% of all light-duty vehicle sales.

WHAT DOES THE IMMINENT ARRIVAL OF

DRIVERLESS VEHICLES MEAN FOR YOUR

BUSINESS AND YOUR FACILITIES?

The answer to the question above depends largely on what you do, where you do it and whom you do it for. Some companies may undergo massive changes that alter their business models forever. Trucking, livery service, insurance and parking-related organizations are often cited as examples of industries most likely to be drastically affected by driverless revolution. For some, the changes will be for the better; for others, not so much.

Regardless, almost every industry, trade and organization will experience at least some effect when a large percentage – even a majority – of the vehicles on the road are being piloted by a computer rather than a human.

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Autonomous Vehicle Technology – What’s It All About?For the most part, it’s a simple concept. The vehicle can drive itself and its passengers to wherever it is programmed to go. The technology website “WiseGeek” says an autonomous vehicle “has an autopilot system allowing it to safely move from one place to another without help from a human driver.”

The nuance is where it gets tricky. A March 2016 report from the U.S. Department of Transportation’s John A. Volpe National Transportation Systems Center identified 13 different vehicle concepts, ranging from near-term automated technologies (e.g., traffic jam assist) to fully automated vehicles that lack any mechanism for human operation.

“Some of the concepts represent automated vehicle features that are likely to be introduced within a few years. More advanced concepts, on the other hand, may not be available for a decade or more (if ever), but the concepts represent plausible applications of automated vehicle technology in light of the current pace of technological development,” wrote the authors of the Volpe study.

“In addition to the level of automation, the hypothetical concepts also differ along two important dimensions: design convention and speed classification,” added the report, titled Review of Federal Motor Vehicle Safety Standards (FMVSS) for Automated Vehicles: Identifying Potential Barriers and Challenges for the Certification of Automated Vehicles Using Existing FMVSS.

Some of the concept vehicles considered by Volpe are essentially conventional vehicles with automated capabilities, while others completely remove certain elements of traditional vehicle design to accommodate automation. Three of the 13 vehicle concepts are low-speed vehicles with a maximum speed of 25 miles per hour.

Radar

GPS

Ultrasonic Sensors

Computer

Odometry Sensors

Camera

Laser Sensor

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Who is Winning the Race?By one count, more than 30 companies are chasing the autonomous vehicle dream. Some have made more progress than others.

Electric car innovator Tesla Motors has received significant press for its “Autopilot” software upgrade, which is part of a $4,250 technology package available for some of its vehicles. In February, Car and Driver rated the 2015 Tesla S P85D best among four “semi-autonomous” vehicles, a comparison that also included the 2016 BMW 750i xDrive, the 2015 Mercedes-Benz S65 AMG and the 2015 Infiniti Q50S.

Tesla’s Autopilot also made headlines for a fatal crash in Florida on May 7, 2016. With the autonomous feature engaged, the driver died when his car drove directly into a tractor-trailer at 65 miles per hour. Tesla founder Elon Musk has defended Autopilot, focusing instead on the number of lives that autonomous vehicles will save. The indication is that the tragedy, while it may raise questions with regulators and the public, will not slow Tesla’s pursuit of a fully autonomous vehicle.

Google, another big name in the driverless car market, took an approach very different from Tesla’s. Through July 2016, the tech giant’s autonomous vehicles had driven more than 1.5 million miles and were on the streets in Mountain View, California; Austin, Texas; Kirkland, Washington and Phoenix, Arizona.

“Our testing fleet includes both modified Lexus SUVs and new prototype vehicles that are designed from the ground up to be fully self-driving,” the company reports on a web page dedicated specifically to its self-driving vehicle initiative. “There are test drivers aboard all vehicles for now. We look forward to learning how the community perceives and interacts with us, and uncovering situations that are unique to a fully self-driving vehicle.”

While the number of companies pursuing the dream of mainstream autonomous vehicles grows, estimates of its arrival date vary from a few years to a few decades. But most believe it is inevitable.

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Business Impact of Driverless TechnologyIt is impossible to predict exactly how our lives, homes and careers will change when autonomous vehicles begin to populate our roadways. There are, however, some likely candidates to experience the greatest change.

Trucking With vehicles at the heart of the business, trucking is often mentioned as one of the industries that autonomous vehicles will dramatically change. “The reality is that the logistics industry is having trouble finding enough people to be truck drivers, so driverless trucks are likely to happen faster,” says Gunnar Branson, CEO of the National Association of Real Estate Investment Managers.

The annual turnover rate at American trucking companies hovers around 100%, according to the American Trucking Association. In an analysis published in October 2015, the group reported that the U.S. shortage of truck drivers was expected to reach nearly 45,000 by the end of 2015 and potentially climb to 175,000 by 2024. Germany, France, Sweden and the United Kingdom all anticipate growing driver shortages as well.

Several companies in the autonomous vehicle market have set their sights on trucks, including six of the largest manufacturers in Europe – DAF, Daimler, Iveco, MAN, Scania and Volvo. In April 2016, these organizations completed a test in which six convoys of semi-automated “smart” trucks arrived at a port in The Netherlands. One of the convoys, which left from a manufacturing plant in Sweden, traveled more than 2,000 kilometers (over 1,200 miles).

When trucks in a convoy employ driverless technology they can operate at closer distances from each other in a practice called “truck platooning.”

THE REALITY IS THAT THE LOGISTICS INDUSTRY IS HAVING TROUBLE

FINDING ENOUGH PEOPLE TO BE TRUCK DRIVERS, SO DRIVERLESS

TRUCKS ARE LIKELY TO HAPPEN FASTER

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Livery ServiceIn the 1990 movie Total Recall, fugitive Arnold Schwarzenegger hitches a ride with a robot taxi driver that looks alarmingly like a ventriloquist’s dummy. There is no indication that the companies fast pursuing driverless livery service – including Uber, Lyft and an MIT spinoff called nuTonomy – plan such theatrics. However, the technology behind this cinematic scene is moving closer to reality.

In May 2016, Uber announced that it has a modified Ford Fusion hybrid navigating Pittsburgh’s streets, collecting mapping data and testing its self-driving capabilities. “When it’s in self-driving mode, a trained driver will be in the driver’s seat monitoring operations.”

Uber showed its seriousness about driverless technology when it hired away more than 40 staff members from the National Robotics Engineering Center at Carnegie Mellon University and opened its Advanced Technology Center (ATC) about a mile away.

“When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle,” said Uber CEO Travis Kalanick in 2014. “So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”

Uber took another leap forward on September 14, 2016, when it made four self-driving cars available to livery passengers in Pittsburgh. Each of the ride-sharing company’s first driverless cars have two staffers on board “for the time being”; one to monitor the computer and the other to take the wheel when necessary. It is another bold step for industry front-running Uber, which also announced a $300 million partnership with Swedish automaker Volvo.

Just behind Uber is nuTonomy, a startup backed by Ford Chairman Bill Ford that raised nearly $20 million in 2016 alone. It seeks to offer a commercial autonomous taxi service by 2018. It is also one of eight companies – including Uber and BMW – to submit an application to

test the technology in Singapore, where it has been running trials of autonomous vehicles since 2014.

Notably, nuTonomy plans to offer “Level 4” autonomous vehicles, which can be considered the “extreme” version of the technology. Level 4 vehicles are designed to perform all safety-critical

driving functions and monitor roadway conditions for an entire trip. All a human has to do is plot the destination.

InsuranceA February 2016 article in Fortune magazine noted, “When autonomous vehicles rule the roads, they will eliminate the estimated 90 percent of traffic accidents caused by human error, which could save 30,000 lives per year and, according to an advisor to car insurance companies, wipe out car insurance companies.”

Lawrence Burns, a retired GM executive and professor who advises corporations, including Allstate and Google, on mobility issues, told the magazine, “Cars are not going to crash nearly as frequently, and they’re not going to crash as severely as we’ve seen in the past, so you could say it could be the demise of the car insurance industry.”

Before you cancel your auto policy or tell your insurance-selling brother-in-law to spruce up his resume, consider that this prediction is only valid when the vast majority of vehicles on the road are driverless. The Fortune article cited a study showing that as long as humans are the dominant

WHEN THERE’S NO OTHER DUDE IN THE CAR, THE COST

OF TAKING AN UBER ANYWHERE BECOMES CHEAPER

THAN OWNING A VEHICLE

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operators of vehicles on our streets, accidents will happen. The study found that autonomous vehicles are five times more likely to be involved in crashes than are autos operated by humans, but that in every one of these cases, the human operator was at fault.

ParkingAnother relic of the automobile age on the endangered list when autonomous vehicles rule the road is the parking garage. This is not only because fewer people would own vehicles, but because self-driving cars would not have the same need to park near the human they transport.

Also, autonomous vehicles can park with more precision and theoretically require less space for occupant entry and exit, thereby reducing the size of the average parking spot. And finally, self-driving vehicles could simply keep going, moving from passenger to passenger with only the rare need to stop for refueling or repairs.

Boston architecture firm Arrowstreet, Inc., in a February 2016 article on Boston.com, said it expects parking demand to decline by 5.7 billion square meters by 2035. “In many instances, people would much rather be dropped off at their destination than having to park their car,” said the firm’s principal designer Amy Korte. “It’s easier for them when their ride can either park itself in a garage or heads off to pick up other passengers.”

Effect on Commercial Real EstateThese changes, and many others that could occur when autonomous vehicles become the norm, will transform the real estate industry. At the root of this transformation is value. Specifically, the location piece of the real estate value equation could be turned on its head. “Some areas do really well because they’re easy to get to by car or it’s cheap to park,” says NAREIM CEO Branson. “Those benefits are less valuable in an environment where people can hail a robot car and get where they want to go.”

As an example, Branson points to the impact that the automobile had on real estate at the turn of the 20th Century. “There will be new winners and losers, just as there has been during any other significant transportation technology shift that occurred over the past couple of hundred years,” he says. “When we switched from horses and trolleys to automobiles and electric trains, the impact was profound. It had a significant effect on our cities and our real estate values.”

WHEN WE SWITCHED FROM HORSES AND

TROLLEYS TO AUTOMOBILES AND ELECTRIC

TRAINS, THE IMPACT WAS PROFOUND.

IT HAD A SIGNIFICANT EFFECT ON OUR

CITIES AND OUR REAL ESTATE VALUES.

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A major question to be answered is how the onset of autonomous vehicles will affect the urban-suburban-rural dynamic. On one hand, people may be drawn to the suburbs because commuting in a driverless vehicle could be less stressful and more productive, while the cost and headache of urban parking would no longer be an issue. On the other hand, as parking garages and other automobile-related space are converted to residential, recreational or commercial uses, would cities become less expensive and more attractive to newer demographics?

“The world is never a simple binary yes and no,” says Branson. “I think the effects will vary. There will be interesting winners in the suburban environment and in the urban environment.”

Impediments to the Autonomous Vehicle RevolutionOne factor that may help answer many questions surrounding autonomous vehicles is how the transportation construction industry responds. Will we create highways designed specifically for driverless cars and trucks? Will we modernize and reconfigure our existing roadways to better suit the coming technology?

Much has been made of the poor state of our nation’s transportation infrastructure, but some experts say that the solution lies more in embracing new technologies – autonomous vehicles in particular – than investing in roads built for vehicles that may soon become obsolete.

Clifford Winston of the Brookings Institution and Fred Mannering of Purdue University published a paper in 2014 titled, “Implementing technology to improve public highway performance: A leapfrog technology from the private sector is going to be necessary.” In it, these transportation experts assert that government policymakers are allowing our highways to deteriorate and operate inefficiently by failing to capitalize on the opportunities presented by technology.

“In the case of highways, we conclude that it is likely that the private sector will eventually implement driverless car technologies, and that those technologies will benefit motorists by leapfrogging the technological advance that the public sector has put on hold. If this innovation is not impeded by government regulations and does succeed, social welfare could possibly increase further by exploring privatization of the road system so that it could operate at the same level of technological sophistication as the vehicles that are driven on it.”

Which brings up a second potential impediment – failure of the regulatory process to keep up with autonomous vehicle technology. When USDOT Secretary Foxx announced the government’s funding proposal in January, he also released a set of policy guidelines. While rudimentary, these guidelines at least acknowledge the advent of autonomous vehicles.

IN THE CASE OF HIGHWAYS,

WE CONCLUDE THAT IT IS

LIKELY THAT THE PRIVATE

SECTOR WILL EVENTUALLY

IMPLEMENT DRIVERLESS

CAR TECHNOLOGIES

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State and local governments are also slowly realizing the imminence of driverless vehicles. According to the National Conference of State Legislatures (NCSL), eight states and Washington, DC, have enacted legislation related to autonomous vehicle operations and one (Arizona) issued an executive order on the matter. At least 25 other states have considered the topic.

A few days before the Tesla driver was killed in an accident on its roadways, Florida enacted a law that modified its existing autonomous vehicle legislation. It permits operation of autonomous vehicles on public roads by individuals with a valid driver license, but eliminates a previous requirement that the vehicle operation be done for testing purposes and that a driver be present in the vehicle.

Florida’s April 2016 law also defines and requires a study on the use and safe operation of driver-assistive truck platooning technology, allowing for a pilot project upon conclusion of the study.

Safety is the overriding factor in most of the laws enacted or under consideration by state and government agencies. Expect government regulators to wade slowly into the fray until safety issues are conclusively resolved.

The greatest obstacle facing the adoption of driverless vehicles may reside in the minds and hearts of the humans they’re trying to help. Even the most avid technophile must admit that a fully autonomous vehicle requires a major leap of faith for humans accustomed to doing the driving. Other resistance may be motivated by the threat to certain professions and even entire industries. “It’s going to require a major shift in human behavior,” says Branson. “But change takes a really long time until it doesn’t. So when the

shift happens, it’s going to happen very quickly. Sometimes change defies our human attempt to control it.”There are many examples of technology that existed, but took decades to become widely adopted. Branson cites MP3 technology, which was patented by a German think tank in the late 1980s and used primarily to pirate music in the 90s. Not until a couple of decades after its discovery did MP3 technology transform the music industry forever. But when it came, it came fast.

The concept of driverless cars is another technology with a long history that predates its eventual development. At the 1939 World’s Fair, GM’s Futurama exhibit envisioned “‘abundant sunshine, fresh air [and] fine green parkways’ upon which cars would drive themselves,” according to Wired.

So it would seem that the time has come for driverless vehicles to take hold. Whether it’s two years, ten years or twenty years away, driverless technology is certain to become a major factor in our culture. Smart companies are dedicating too much money and brain power for it to fail. This being the case, it’s important for those of us in the commercial real estate industry to be aware of what this means and to do what we can to prepare and take advantage of it when it comes. Pay attention and stay tuned.

Learn More Cresa IndustrialJim Winter617.758.6080 | jwinter@cresa.com