Our Frictionless Future

If I had asked people what they wanted, they would have said faster horses.

Henry Ford

We’ve all thought about it at this point: climbing into our personal chic, sleek self-driving car. It looks very much like our current vehicles except for the conspicuous lack of a steering wheel, comfortable lounge seating, and an inordinate amount of tech. We imagine the vehicles of the future as our own half automobile, half hotel room. It’s gonna be super sweet, right?

It’s a beautiful and resonant aspirational image, and it describes a future that looks like a drastically improved version of our own (or the movie Minority Report). However, that image is only a small part of how the coming mobility revolution will change our world. The technology driven combination of changes in consumer mobility and efficient and delightful Transportation as a Service (TaaS) offerings, coupled with the looming hypercharge of autonomy will change everything about how we live in our cities. It will be a transformation as fundamental as the invention of the motorized carriage was at the start of the twentieth century, which was….a lot! Yet when we think of autonomous vehicles we tend to think of better cars, just like 100 years ago people thought of faster horses. So if we’re really on the verge of a change as profound as the introduction of the Model T, how do we unlock our brains? How do we shed the preconceptions of the era of the car, and imagine a radically different future? How do we imagine automobiles when all we know are horses?

First, we need to really examine what we mean when we think of “driverless cars” and, to the best of our ability, make sure we can identify and explore each of the developing technologies and corresponding social changes with clarity and precision. And to do that, we will need to unbundle several distinct trends (though they are often correlated and connected) that are implicit in our thinking about autonomy and understand what’s (ahem) driving each of them at different speeds. With that understanding, we can then reconnect them to develop a vision of what the future of transportation might look like, when and how the change will come to our cities and society, and how all this might impact real estate utilization, operations, development and investment in the years to come.

So let’s break it down by examining three interrelated trends: radical personal mobility, transportation as a service, and autonomous vehicles.

I. The Revolution Starts Soon

Radical Personal Mobility: Coming Un-Stuffed

The first key set of developments driving the future of mobility, the digital and mobile revolutions, have swept the world with such speed and depth that now it’s almost too obvious to discuss. The digital revolution has dematerialized whole categories of stuff (think CDs, DVDs, books) dropping the marginal cost of distributing data to near zero. Suddenly, we are able to access as much content as we like through fixed, inexpensive subscriptions such as Netflix and Hulu for visual content, or Spotify and Apple Music for audio content. However, what made those services really take off was the mobile revolution which, through unlimited high speed cellular data service and nearly omnipresent WiFi, has enabled us to access all of those things instantly, anywhere and anytime, using a relatively few number of all-purpose devices (phones, tablets, and laptops).

The digital revolution dropped the marginal cost of storing and distributing data by orders of magnitude, and the mobile revolution similarly dropped the frictional costs for accessing data – including cost of devices and data, increased speed and reduced lag, and the ubiquity and reliability of wireless service. Each was a technological revolution on its own, but when they both came to maturity, a global societal revolution occurred.

We are now able to store and access effectively unlimited amounts of information and computing, via tiny supercomputers in our pockets connected to a high-speed network in the air. The revolution has been so fast and so complete that it seems almost trite to mention it, but it is worth pausing a moment to appreciate how radically it has impacted our lives. There are very few everyday tasks, from having a simple conversation with colleagues to running complex calculations on huge data sets, from shopping for hardware to ordering a gourmet meal, that we can’t do today from virtually anywhere on earth.

In the workplace everything from filing cabinets to conference rooms to copy machines have been either eliminated, drastically reduced, or materially transformed. In the home, we no longer have shelves full of CDs and DVDs , most of our physical books are either meant for display or nostalgia, the vast majority of our pictures are digital, and piles of electronics have been replaced and consolidated into a relatively few multipurpose devices. And these days, when we’re on the move we just don’t need to carry that much stuff. Think of all the things you had to travel with in your car just 15 years ago – all the papers, CDs and books, briefcases, maps (remember Rand McNally guides?) pens, bulky cell phones, even the change for parking meters and phone booths. All gone. Sure, most people in most cities still want a car, but the dematerialization of stuff enables us to take one giant step away from being tethered to our personal cars. Think for a moment, aside from the car itself, once you’ve connected your phone via Bluetooth, how functionally different is the experience in a rental car from that in your own vehicle?

Critically for this discussion, the mobile digital lifestyle is not only faster, better and cheaper but even without adopting the Marie Kondo lifestyle, it also requires almost no “stuff,” which enables personal radical mobility.

Transportation as a Service (TaaS): What’s New is Multimodal Again

The OId-Fangled Banner

When we hear the phrase Transportation as a Service (TaaS) these days, our minds often jump to relatively new companies like Uber and Lyft, Zipcar, Bird and Lime. However, TaaS has actually been around for a very, very long time.  Sharif Marakby, CEO of Argo AI (Ford’s AV subsidiary, in which Volkswagen recently invested $1.7 Billion ) describes TaaS as the business of “moving people and moving goods,” as opposed to selling the vehicles that do that. Relatively few people have ever owned boats and ships, yet they have carried people and goods as a service since the dawn of recorded history. Stagecoaches have already come and gone, replaced by trains and buses and airplanes and taxis – all offering mobility without the capital costs of vehicle ownership. Long-haul trucking is TaaS, and so is the Postal Service, UPS and FedEx. And unless you live right outside the automobile factory, even your private car probably got to you through TaaS. If you live in hyper-dense Manhattan, between subways, taxis, trains and delivery, most people live their entire city lives using nothing but TaaS, because it’s cheaper, easier, and better than the private alternatives. Not to belabor the point, but our society is and always has been built in part on a shared transportation network consisting of different modes which we access for certain tasks.

Modes of transport are the various types of specialized transportation we use for specific needs and environments. For instance, we use airplanes and ships to move from country to country, trains and semi-trucks and buses to move people and goods from city to city, cars and motorcycles and light trucks to move within cities. A multimodal TaaS network consists of various types of transportation strung together to create a relatively seamless movement experience, and you might be surprised to find you’ve been using such networks your whole life. When you drive to the airport, take a train to your terminal, and an airplane to the next city – well, you’ve just gone multi-modal. If you’d taken a taxi at each end, your entire journey would have occurred via a multi-modal TaaS network. And your checked luggage would have been transported via several additional modes, including a conveyor belt to the baggage cart, carried by people who load it onto the plane, and back again to the carousel on the other end.

You’ll notice a general pattern, which is that we have historically used shared transportation networks for people and stuff to create efficiencies when we’re moving a lot of stuff or a over long distances, or most commonly both. Because for most people the capital costs involved in large-volume/long-distance travel are far too high for personal ownership, and the operating costs are more efficient at scale. Thus, for all but the very few, renting a seat on a plane or shipping your packages via UPS are no-brainers compared to the alternatives. And throughout the history of transportation, personal automobile ownership is the anomaly, not the norm.

However, when you access such a network, there’s usually downsides – whether it’s limitations on speed and availability, having to move from one fixed point to another (eg. bus stations, airports, mailboxes, etc.), or having to share the space with other people. While it is far more capital efficient to rent transportation as needed, aggregating demand creates a whole chain of inefficiencies, or frictional costs. The physical difficulty, logistical complexity and overall inefficiency of aggregating people and things at the right time and place to share transport has historically been relatively high. Until recently, the easiest way to aggregate demand on TaaS networks has been through relatively rigid scheduling: you have to make that plane before the door closes, be at the bus stop right on time and, until recently, call well in advance to order a taxi. These days, however, the aforementioned mobile and digital revolutions have created much more dynamic models for aggregating and matching transportation supply and demand, which both improves the customer experience (faster, better) and the operational and capital efficiency of operating the service (cheaper).

The frictional costs of sharing transportation are being dramatically reduced, and that can have an enormous effect on markets. And we can look to very recent history for an extraordinary example of what a (literal) sea change can occur when innovation drives down frictional TaaS costs.

Facts and Friction

One of the great and often overlooked innovations of our era was the creation and rapid global adoption of the standardized intermodal shipping container in the middle of the 20^th century. The standardized shipping container was created in 1956 by businessman Malcolm MaClean and engineer Keith Tantinger for their company Sea-Land and adopted as a global standard by 1970. Standardized containers made it much cheaper and easier to physically move goods from one transportation mode to another, logistically less complex by consolidating many pieces of stuff within a single standardized box, and dramatically reduced the leakage (sticky fingers) that occurred each time it got moved. Even in its very first trial run, containerized shipping reduced the frictional costs of loading and unloading a ship by 97%. The standardized technology then propagated across other transportation modes in the network, specifically trucking, shipping and industrial logistics, and dramatically changed the economics of global trade virtually overnight.

Shockingly, prior to global adoption of containerization, more than 10% of the gross value of US exports and imports was in embedded transportation costs. With these costs dramatically reduced by intermodal containerization, whole new business models became viable and new markets became accessible. It is estimated that the adoption of standardized containers increased bilateral trade in some countries by more than 300% over the first five years, and nearly 800% 20 years later. Less than 50 years after it became a global standard, approximately 90% of all non-bulk goods in the world are moved through the containerized system. By radically reducing the frictional cost of transport across a multi-modal transportation network, containerization unleashed a massive economic boom with startling speed, raising the standards of living and creating new economic opportunities for billions of global consumers and producers alike.

Bringing It All Back Home

Why are we spending so much time talking about the containerization of long-haul shipping networks (like the directly analogous digital innovation that unleashed the power of the Internet, packetization) in an article about the future of mobility and its impact on real estate? Because we are at another moment when the frictional costs of moving people and stuff is dropping precipitously. This time however, the big reduction is happening not in the long-haul lots of stuff transporation network, but in the costs of moving smaller goods or individual people shorter distances, within or between urban areas.

The array of technologies that enabled the mobile and digital revolutions are now being applied to urban transportation at scale. Online payments now make it instant, reliable, (mostly) secure, and extraordinarily cheap to process a financial or data transaction. Modern computerized logistics systems, coupled with an array of advances ranging from the Internet of Things (IoT) to RFID-tags, have enabled us to track goods, people and vehicles through an enormously complex supply and transportation chain, at almost no incremental cost for each additional item. Largely automated and mechanized picking, packing and sorting systems dramatically reduce the time, labor and ‘last mile’ costs for moving goods. GPS technology allows us to match vehicles to users automatically, and integration of vast amounts of such data route them efficiently across the transportation grid.

Companies like Amazon use less than a minute of human labor to move an item through their warehouse (also transportation) and prepare your package, and then use a wide array of in-house, third-party, and distributed transportation networks to deliver goods to the consumer in just hours. Companies like Uber can locate you and match you with an independent car and driver to take you almost anywhere from almost everywhere. Whole new business models are emerging in otherwise stodgy segments, including direct to consumer models like Warby Parker or Casper and innovative sharing-economy concepts like Rent the Runway or the recently funded ReBag for designer purses.

The TaaS economy can create newfound relevance for obsolete or ‘failed’ technologies. Segway launched in 2001 with a personal ownership model, and quickly became a laughingstock. Today, that same 20-year old technology deployed in a TaaS model is powering the growth of micro-mobility scooters, one of the most rapidly adopted business models in history.

Economies of scale create a vastly more efficient deployment of and return on capital investments. The same car that is utilized at 1% in a personal ownership model can be utilized almost continuously in a taxi or ride-sharing model, dependent only on the limitations of demand. The drop in frictional costs enables more efficient transportation models: it consumes far less time and resources (gas, depreciation of your car, risk of accidents) for one UPS truck to deliver goods to a multi-family building or residential neighborhood, than it is for each of those residents to drive to the nearest Target. Anybody who’s been stuck in traffic behind a bunch of trucks can tell you that the movement of people and things through cities has always been intertwined. What was once a bug is now a feature.

It’s Still in the NetWorks

As the multiple modes of transportation that move people and goods become both increasingly specialized and ever-more interlinked, we are reaping the benefits of the same “network effects” that have transformed businesses from containerized shipping to social media. Each new, specialized mode of on-demand transportation added to the network increases the value of all the others. It becomes far more reasonable to ride a Bird scooter to work when you know there will be a Lyft available to take you home if it starts raining, and an Amazon/Whole Foods or Instacart to deliver your day’s groceries. The same Uber driver that takes you home one night might be the same UberEats driver that brings your hot dinner the next night. The integration of inbound and outbound routing makes both services cheaper and faster, and you can even synchronize them so both you and your goods arrive nearly simultaneously.

Stop and look around, take a moment to appreciate how rapidly the deployment of an efficient multi-modal TaaS network is already changing our world. For most goods, it’s now cheaper and easier to get it delivered, often the same day, than it is to go to the store. Of course, the more you value your time, the more net productivity you lose while driving, not to mention the stress and strain of a busy commute. There’s a reason very few billionaires drive themselves to work.

Right now, as you read this, if you live in an urbanized core and have a relatively short commute, using TaaS services to move you and your goods is already more capital and operationally efficient than owning, maintaining and driving a car, and is a better all-around experience. Just as it has been in dense urban areas like Manhattan for years.

As breathtaking as the changes have been already, hold on to your hats. Because while the new TaaS networks have reduced the frictional costs of transportation by an order of magnitude, what’s coming next is going to drop the marginal cost of transportation by an order of magnitude. The additional marginal cost of moving a person or thing a relatively short distance is about to drop precipitously, supercharged by the biggest step change in mobility since the automobile – autonomous vehicles.

Autonomous Vehicles: Mister Roboto

When people talk about Autonomous Vehicles (AVs) they usually are thinking about driverless cars. Those are coming, and we’ll talk about them shortly, but let’s zoom out or a moment and look at the larger autonomous ecosystem – that is, not just cars that automatically move people, but robots that automatically move people and move things. Yep, we’re gonna talk robots.

• My definition of an autonomous vehicle is “a self-directing machine that carries people or things from one place to another.” So don’t think car, think KIVA which moves shelves inside Amazon warehouses, or Roomba who moves dust out of my living room, or even R2D2, who carries lightsabers, holograms of princesses, and even battle plans. They are all examples of autonomous vehicles, purpose-built and optimized to move people or things from one place to another without human intervention. They all replace human labor, whether it’s a warehouse worker, a cleaning person, or a Jedi. They all require a relatively high capital investment to purchase, but very low marginal and frictional costs for each use. They also have all been on the market and in use for more than 5 years. Except for R2D2, who’s been around for a long, long time (but admittedly in a galaxy far, far away).

Even though most people don’t realize it, we’ve actually been in the age of autonomous transportation for some time already. It’s still early days, so the mass market use cases have tended to be constrained in many ways – limited to specific tasks, in relatively uncomplicated environments, and usually (with one notable exception) entirely on private property. But if you’ve ever bought anything from Amazon, then you’ve probably indirectly been impacted by the autonomous economy. Also, I hate to tell you this, but most commercial airplanes have been taxiing, flying, and even taking off and landing autonomously for years. Scary, huh?

Don’t freak out though, because in 2017 there were more than 37 million global commercial passenger flights, the most in history, and not a single fatality anywhere in the world. (Full disclosure, in 2018 there were approximately 500 deaths in 3 significant crashes, but that was still the third lowest gross number on record, despite even more flight miles logged.)

Autonomy kind of rocks.

Level Setting

Various forms of autonomous transportation have been in use for years, so what’s all the sudden hype about? It’s because autonomous technology is now able to do two critical things:

1. Safely and efficiently operate on most (but not necessarily all) public roads, walkways and airways, and
2. Safely carry humans without requiring a driver or pilot standing by.

Those two things together are referred to as Level 4 Autonomy and, particularly when deployed in our growing multi-modal TaaS network, reaching Level 4 is going to have an enormous economic impact.

The most common construct for describing the evolution of autonomous capability is the 0-5 Levels of Autonomy.

To quickly understand this let’s take some examples. An original Ford Model T is a Level 0 on this scale. Most modern cars equipped with features such as basic cruise control, lane warnings or emergency auto-braking are Level 1. Tesla’s automatically navigating freeways on AutoPilot are officially only Level 2 for regulatory reasons, though they could reasonably be considered Level 3. The new-model Audi’s equipped with the rather understated Traffic Jam Assist feature, which can take over for the driver in urban areas at speeds under 40mph, are most definitely Level 3.

Levels 0-3 are an escalating scale of convenience and safety, but still require a human to be alert and available to take over at a moment’s notice. They are all currently available in the mass market.

The big leap, the step change, comes at Level 4, with vehicles that can be operated in limited environments completely free of a human driver. And Level 4 is arriving right now.

Not Too Far, Not Too Fast (But Pretty Far, Pretty Fast)

First, a word about Level 5 – full autonomy in all use cases. A single Level 5 vehicle will be able to operate without human intervention in any environment (urban, suburban, rural, highway, even off-road), at any reasonable speed, under any environmental conditions. Very cool but, as you may have heard, most technologists predict that Level 5 AVs will not arrive for nearly a decade, until 2030. It doesn’t really matter.

Explore Level 4 ATaaS Producers and Beta Programs

WAYMO Commercial Beta

WAYMO’s New Michigan Factory

UBER

Ford Argo

General Motors

ZOOX

NURO Delivery Vehicles

Amazon Scout Delivery Vehicle

NAVYA Buses and Taxis

Mercedes-Benz Vision Urbanetic Passenger and Cargo Vans

Mercedes & BMW ATaaS Partnership

Jaguar I Pace with Waymo

Brookfield

Here’s the thing, while any one Level 4 vehicle may not be able to manage every use case like a Level 5, a combination of multiple, specialized Level 4 vehicles will be able to effectively navigate the vast majority of common use cases. Where have we heard that before? That’s right, at Level 4 it is possible to create a fully autonomous, multi-modal TaaS network capable of moving most people and most goods in most use cases, without requiring a human driver to be present. That’s the giant change, which is the elimination of the human driver costs that currently limit the affordability of TaaS networks. While the capital costs of owning a Level 4 Vehicle may be relatively high, the marginal, incremental cost of each trip or mile in a Level 4 vehicle is almost solely the power required to move it. And since virtually all future autonomous vehicles will be electric vehicles (EVs) most Level 4 AVs will have a marginal cost of just cents per mile to operate.

While people tend to focus on the fact that Level 5 AVs are a decade away, they don’t realize that commercial deployment of Level 4 Autonomous Transportation as a Service (ATaaS) offerings is beginning to happen right now, with mass-production and deployment within the next several years. Billions and billions of dollars are being invested by technology giants such as Uber, Alphabet (via Waymo) and possibly Apple, by automobile giants such as GM, Ford, Audi, BMW, Mercedes-Benz, and some intriguing and extraordinarily well-funded startups such as Zoox. Huge investments are going into specialized AVs for local deliveries. In just the last few weeks, Amazon unveiled the public beta of their autonomous delivery device Scout, and SoftBank invested almost a billion dollars in a competitive offering, Nuro, which has already been autonomously delivering groceries in Scottsdale, AZ for months. Just weeks ago Waymo announced a massive factory in Michigan to fit third-party cars with their autonomous technology. General Motors recently told shareholders that they expect to launch their commercial ATaaS offering by the end of 2019. And the list goes on, with new announcements coming out almost daily over the last several months. These investments, commitments and public deployments mark a transition out the pure research and development stage of Level 4 AVs and into the age of autonomy at scale.

In other words, ignore the yawing maw that is the Level 5 AV trough of disillusionment, because the world of urban transportation is about to get really weird, and maybe much sooner than you were expecting. And, without question, the first mass-deployments of Level 4 AVs in our society will not be based on a traditional private ownership model, but rather will be deployed as an ATaaS offering.

But People Love Their Cars!!!! (But People Loved Their Horses!!!!)

In my mind, the question of if there will be widespread adoption of electric AVs as a service is a settled question, driven by compelling safety, economic imperatives and user experience benefits, which you can explore further in the sidebar [LINK]. Even pre-autonomy, millions of people subscribe to a fixed cost transportation service, and it’s called Amazon Prime. It is now a question of when and how, not if. There will certainly be complex regulatory, social and logistical hurdles to negotiate and overcome as we make the transition to ATaaS, the adoption curves of recent non-autonomous TaaS services suggest the autonomous revolution could happen very quickly.

At the end of the day, most of us will have the kind of access to on-demand goods and services currently reserved for hyper-dense areas like Manhattan, and we’ll be able to travel safely and comfortably around our cities like billionaires, all at a fraction of the cost we currently pay for the privilege of sitting in traffic. And that’s a pretty compelling value proposition.

II. Talking ‘Bout a Revolution, Possibly Literally

The global impacts of autonomous transportation are going to be enormous, complex, and will take years and possibly decades to stabilize. Almost every industry will be transformed, if not disrupted. Just trying to capture the scope of the coming change is incredibly difficult, and trying to forecast it is impossible. However, there are some key themes we can identify and keep an eye on, as the tendrils of the mobile revolution reach into every part of our lives

Stop. Play It Back.

To review, the mobility revolution is underway and will be driven by three key technology-driven changes.

Radical Personal Mobility We can do almost anything, from almost anywhere, with very little personal stuff, which frees us not only from our offices, but also from our cars.

Transportation as a Service Technology dramatically reduces the frictional costs of sharing transportation of both people and goods, enabling a radical efficiencies in capital investment and unleashing a host of new economic dynamics and opportunities.

Autonomous Vehicles Level 4 electric vehicles are the threshold for the autonomous TaaS networks that will remove the cost of human labor from transportation, dramatically reducing the marginal costs of mobility, and they are within several years of mass commercialization.

All Consuming

Just as radical mobility fundamentally altered the way we consume real estate, making #SpaceAsAService the trillion dollar hashtag, the arrival of multi-modal ATaaS will change nearly every aspect of how we consume transportation. And since nearly everything we consume is connected to transportation, from the device you’re reading this on to you last trip to the salon, that means that’s ATaaS will change how we consume almost everything.

Deliverance

There will be an increasingly efficient and reliable multi-modal autonomous TaaS network for moving goods and services to us with increasing speed and reliability, rapidly decreasing costs as the network scales. These urban networks will be increasingly connected to local and global logistics and supply chains. Some of the vehicles delivering goods will be relatively special purpose, like the aforementioned Amazon Rover and Nuro, and possibly soon the oft-mocked autonomous drones that Uber and Amazon are developing. As the network grows and offerings proliferate, physical standards will be adopted to drive intermodal efficiency, significantly winnowing the number of form factors. Just like containers did with ships and trucks.

Subscribe and Ride

There will be a parallel and integrated autonomous TaaS network for moving people, as in most use cases people-carrying vehicles will have different form factors and safety requirements than those needed to move goods. At first these services will charge by the mile, but over time frictionless subscription-based offerings will emerge for intraurban travel, just like it already exists for data and even many physical deliveries.

Networks, Networked

The two networks will eventually optimize in real-time the movements of both people and goods across urban areas to minimize infrastructure congestion while increasing speed and utility. An example of this for people might be suggesting time and locations for in-person collaborative meetings to minimize the collective inbound and outbound travel times of all the participants. And delivery of your goods might be synchronized with your arrival at home, so that they arrive hot or cold as the case may be, and always secure. In the long run, we may reduce in-home storage space, as we can get common items delivered quickly, reliably, and at no incremental cost.

Economic Displacement

I Can’t Even Make A Pun About This

There will be significant economic displacement and possibly social turmoil as we shift from an automobile-based economy to an autonomous one.

The long-haul trucking business will be one of the first big industries to be radically transformed by autonomy, moving goods along interstates between urban nodes much more quickly, cheaply, and safely. Autonomous trucks will be able to operate almost continuously, without the legally mandated sleep requirements for drivers. There are approximately 3.5 million professional truck drivers in the United States and an additional 5.2 million supporting jobs. Many of those workers will need to be re-trained and placed in new vocations. Small town economies dependent on providing services to long-distance drivers may be especially hard hit.

Most of the ride sharing and delivery TaaS companies are both private and growing too rapidly to accurately measure the global number of drivers, but Uber and Lyft combined have more than 3.5 million global drivers, while Chinese competitor Didi Chuxing has a staggering 21 million drivers in its network. Those recently-created jobs have helped cushion the economic blow of other recent technology driven economic displacements (looking at you Dunder-Mifflin), by enabling people to monetize both their common skills and one of their biggest capital assets and monthly expenses. It remains to be seen whether another such labor-intensive industry will emerge as we transition to ATaaS.

While there are long-term unknowns about whether the loss of these jobs will create markets for new ones, we know from history that economic transitions like this generally place enormous stress on workers, families, and society at large.

Fees and Streams

The entire model of revenue collection for maintaining urban infrastructure will change, as cities and states will no longer get revenue from driver licenses, car tags, fuel taxes, traffic tickets, parking tickets, municipal parking meters and many, many more. This will also displace significant numbers of jobs in law enforcement and first responders – even setting aside traffic enforcement, approximately 2% of US GDP consists of the physical, legal, and medical costs of human-caused traffic accidents. Instead, the bulk of infrastructure capital and maintenance fees will be generated from fees charged to ATaaS operators both for accessing the public physical infrastructure and connecting to common governmentally owned data exchanges, which will both connect each ATaaS provider to all the others and optimize and route traffic across the grid in real time. It’s conceivable municipalities could tax real estate assets on the amount of vehicle traffic in and out or even, in an effort to optimize grid utilization, by miles traveled to and from a given building, altering the incentive structures of everything from asset development to tenancy decisions and negotiations.

III. Now It’s Getting Real Estate

What will the age of autonomy mean for real estate?

This is, in many ways, the most profound real estate question in more than a century. Transportation has been a primary driver of urbanization from ancient Mesopotamian and Egyptian civilizations along the Euphrates and the Nile, to the opening up of new markets at railroad intersections, to the ability of cities to drive expansion with mass transit and interstates. The automobile profoundly changed the nature and size of cities, where and how people live and work and is the key transportation mode that shapes them to this day. Transit and highway accessible developments have long commanded premium pricing. Now that the car is being disrupted, we can expect to see profound shifts. But projecting exactly what they might be is tricky, to say the least.

So, at the risk of getting way over my skis, and with the high probability that I’ll be wrong, I’m going to put on my Nostradamus costume and start prognosticating.

As mobility evolves and with it, the consumer, comes significant implications for commercial real estate. We’re seeing shifts in the thinking around parking, office and retail spaces, redevelopment of infrastructure to make way for increasingly popular modes of transportation, including e-scooters, autonomous vehicles and electric vehicles, and a change in industrial needs.

Revathi Greenwood, Americas Head of Research, Cushman & Wakefield

Location, Access > Storage, Location

One of the biggest thematic through-lines will be a premium on real estate assets with the ability to efficiently interact with lots of AVs and the goods and people carried by them. In this near future world, a good Porte-Cochere beats a good garage, and easy ingress and egress for high volumes of small AVs beats large loading docks and in-building storage space.

On-site storage of cars, aka parking, will drop dramatically over time. While estimates vary, in the United States there are approximately 1.5 billion parking spaces, or more than 10 spaces for every driver. In an autonomous future where there may be less than 1 vehicle for every driver and, (excluding the low-demand hours in the middle of the night, when they will be serviced and charge) most AVs will spend 1/10 as much time parked as privately owned cars, we will eventually need 1/1,000th as much parking, freeing up over a billion parking spaces and hundreds of billions of square feet of parking area. Some of that space will be repurposed as hyper-local intermodal logistics hubs for the charging, fixing, cleaning and loading of the ATaaS network, some of it will be available for redevelopment, some will be adaptively reused as affordable housing, public space, retail and services, and some will be creatively used for things we haven’t yet thought of.

Just as offices have become more efficient in the digital age, both single- and multi-family housing will become more efficient in the ATaaS age, as storage and privately owned equipment needs decrease over time. New offsite storage models are already disrupting traditional self-storage, and with the efficiencies of autonomy may soon disrupt your closet. (Yep, that’s a real estate disruption!) It may be cheaper and easier to outsource simple tasks like laundry to an on-demand service, rather than have a rarely utilized washing machine in every home.

In Rachel Botsman’s influential Ted Talk on the sharing economy, she famously used the example of the common power drill in most homeowners’ garage or tool box, but which are used an average of only 13 times. She observed “It’s kind of ridiculous, right? Because what you need is the hole, not the drill.” This hasn’t happened yet because, while frictional costs of the transaction have been reduced (just as with TaaS) the incremental costs of moving it there have not. ATaaS will make it cheaper, easier and better to call a mobile tool box for an hour than to own and store a drill. That garage just keeps getting emptier.

While it is too early to tell whether the co-living models currently being tested will become more valued in an ATaaS world, it’s certainly true that some of our domestic machines and storage needs will become superfluous, as will the real estate dedicated to them.

Hands On The Run

Over time human services may be delivered not only by ATaaS, but in AVs. You might be able to get a haircut or your nails done while you commute home. Other services, from a relaxing massage to private dining to conference rooms, might be available on longer trips. And these same specialized vehicles might also deliver on-demand services right to your doorstep, with your preferred service provider coming to you, fully equipped to do their job, rather than the other way around. You might be able to take a regional journey overnight in a mobile hotel room, reducing demand for both air travel and hotels. In other words, it’s not a big leap to imagine a world where transportation services compete directly with real estate. In fact, Waymo and Jaguar are already planning it.

Here is an excerpt from a recent blog post by Waymo “That means riders will be able to choose from a broad array of options that will match their very specific needs: one for working remotely as you commute, one for dining with friends, even one designed for napping!”

This is happening.

The Street to Suite Life

As the TaaS network solves the “last mile” problems, all property types will need to be enabled with “last leg” services and retrofitted with automatic infrastructure to facilitate the interactions between building and transportation. Some multi-family buildings are already not only offering Amazon Prime as part of the rent, but also will put your deliveries securely in your unit and even stock your fridge with perishables from Whole Foods. In the residential, office and even retail sectors the infrastructure to facilitate a smooth handoff of goods and services from external vehicles to in-building distribution will be more valuable than onsite storage of goods. Eventually the TaaS network on the streets will connect directly into building infrastructure, services and amenities. Over the next decades, buildings with the physical infrastructure to automatically complete that last leg from ‘street to suite’ will command a premium, as they simultaneously reduce operating costs for both building operators and ATaaS delivery services, while increasing occupier satisfaction. Because the future is dynamic and uncertain, new flexible design and construction techniques and methodologies will allow for future flexibility. And retrofitting existing assets with this last leg infrastructure will be big business.

Ah, But We’ll Always Have Data

Buildings will increasingly generate extraordinarily valuable data, as the movement of people and goods within and between buildings will all be monitored by IoT sensors and the vehicles themselve, and will be powered and optimized by digitally driven services. The buildings in which people work and live will become the data aggregators of the physical world able, among other things, to help the TaaS and logistics network predict demand and optimize traffic. But there will be many other ways to extract value from all that data about our physical lives, just like Google has found so many ways to profit from their data on our digital lives.

People Are People (You Complete Me)

Finally, there has been much discussion of whether autonomy will cause increasing urban density or accelerate urban sprawl. While it is extraordinarily difficult to predict the future of such a complex system, I cast my vote for density. Many of the incidental physical social interactions that have long been a required part of life, from seeing your coworkers in the office to bumping into somebody at the grocery store, will no longer be necessary.

It is a part of human nature to want personal interactions, and we will need to seek them intentionally. The automobile and information economies drastically reduced the required physical activity for many people, so we began to intentionally exercise in order to fulfill our basic physical health needs. Most people are social animals, so I think most of us (and most of the time) will increasingly choose to live in multi-functional and walkable work, live, play environments. We need to be around other people for our emotional and mental health, and we’re going to choose to go where the other people are. Not needing a place to work has spurred us not to dispense with the office, but to reinvent it as a more compelling product with a better sense of place. ATaaS may render obsolete many of our current uses of place and space, but I think that will drive us to be more creative about using those spaces for what we want, not just what we need. Density is destiny…I think.

There’s Nodes Place Like Home

The real estate impacts of our common desire for human interaction will lead large urban areas to increasingly develop multiple, in fact many, areas of density which people can explore through walking or micro-mobility solutions like scooters. If you think of cities like computer networks, these will be the server farms and fiber-optic interchanges. At or near those hubs, delivery of goods and services will be faster and better for the next few decades, as quality services, variety of goods, and deployment of infrastructure and rollout of ATaaS services around consumers. While ATaaS will reduce the incremental cost of transportation by orders of magnitude, the time it takes to move goods and people will decrease relatively marginally (we’ll have to await the Star Trek transporter for that one.) Consumers will cluster around access to quality goods and services, creating a self-supporting cycle of densification. Living in these urban nodes will be a cheaper, easier and simply better lifestyle than living in far flung suburbs. Just like the benefits of Uber and Amazon are dramatically better, and sooner, when you live in urbanized areas, future ATaaS offerings will be better in those same places for the foreseeable future.

These benefits will build on current trends of multi-nodal urban clustering, and the radius of premium value will expand around already existing densification nodes. Real Capital Analytics has been tracking the increasing correlation between walkability and accretion of value in real estate. Micro-mobility may already be starting to expand the radius of that premium valuation. ATaaS will further expand the radius of that value, and probably increase the premium, because living in relatively dense areas will simply be so much cheaper and better than living far from them. And of course, those areas will have the most undisruptable commodity of all, shared human experience.

In case you’re wondering there is no transporter technology on the horizon, so for the next decades multimodal ATaas will connect multi-nodal, densifying urban areas.

IV. We Live in an Age of Miracles

Humanity is on the verge of another revolution, a mobility and transportation revolution, People and goods will soon be routed across giant urban networks safely, quickly, efficiently and with negligible incremental costs. While we may be a decade away from Level 5 AVs, but because of market conditions made possible by widespread adoption of radical personal mobility and the Transportation-as-a-Service business model, we have already crossed the technological threshold necessary to create mass commercialization of autonomous vehicles, delivered as a service. We can expect these services to begin to rollout at scale in the next several years, and history suggests they may be adopted at extraordinary speed. We will have to navigate a significant and potentially difficult economic transition, which will displace millions of jobs, impact tens of millions of people, and broad swathes of our global economy. Nonetheless, these autonomous services will have as profound effect on real estate utilization and valuation as the introduction of the automobile, and potentially impact nearly everything about real estate we hold as immutable truth.

Buildings that invest in the services and infrastructure to efficiently access the ATaaS network, providing occupants with a seamless, secure and speedy ‘street to suite’ last leg experience, will command premium pricing. Those that automate that experience will reduce operating expenses. Those that do both, first, will outperform others in NOI and gain mid- to long-term defensibility of premium cap rates.

There will be huge amounts of storage space, especially parking, that will become functionally obsolete and available to be repurposed. Some of that obsolete storage space will be converted to ATaaS infrastructure and support facilities, but most of it will become available for adaptive reuse.

Data will become an increasingly valuable part of the real estate asset, as it allows integration of occupant needs with the local ATaaS network all the way to the global supply chain, creating improved experiences, lower costs, and increased efficiencies at every step along the way.

Locations, of all property types, that are in or near densified urban nodes will provide their occupants with a cheaper and better way to work, live and play, decades sooner than outlying locations. The NOI and value premiums commanded by highly walkable assets will be further enhanced by premiums on the speed, availability and quality of ATaaS enabled offerings. The radius of that premium from the centers of densified areas will continue to grow, for at least the next many decades.

At the end of the day, the real question we’re asking is “How will billions of humans change their behavior in a rapidly changing, radically transformed world of mobility, and what kinds of real estate strategies will match their needs?”

Fortunes are made and the future is built by correctly answering questions like that at a moment like right now.